Back to Intel
Some could argue that Intel Corporation (NASDAQ:INTC) could create better products, or different product categories, but most of those opportunities have been exhausted by Intel.
Companies that offer infrastructure-as-a-service (outsourcing of servers), and platform-as-a- service (servers, and tools for web based programs), are decreasing the usage of hardware components. A cloud data center may have hundreds if not thousands of customers, this means that pre-existing hardware is being used more efficiently, as a result, IT spending may continue to fall.
Another concern is that larger hard drive capacity and faster computing will lower the total number of servers needed to manage the large pools of data that humans are currently using and creating. Because of competition, Intel has to release faster processors even if it lowers the total demand. Also, Intel cannot freely raise prices without risking market share losses to competitors like Advanced Micro Devices, Inc. (NYSE:AMD) and NVIDIA Corporation (NASDAQ:NVDA).
Another dilemma that Intel currently faces is that Intel has stolen so much market share from Advanced Micro Devices, Inc. (NYSE:AMD), that there’s not much left to steal (AMD has around 20% of the consumer x86 market, but mostly in the low-end). Intel always beats AMD at making processors, and I believe this will continue. The benefits from taking market share from AMD are diminishing as computer shipments have declined for five quarters in a row. I don’t think Intel can offset the difficulties in the computer environment by stealing market share away from Advanced Micro Devices, Inc. (NYSE:AMD) and NVIDIA Corporation (NASDAQ:NVDA).
The demand for mobile Intel processors won’t increase as much because QUALCOMM, Inc. (NASDAQ:QCOM) dominates both the low and high-end. QUALCOMM, Inc. (NASDAQ:QCOM) can price its chips for a lower price and still earn a profit (due to greater economies of scale).
At this point, Intel should look to anything outside of hardware to sustain growth.
Conclusion
Don’t get your hopes up, Intel Corporation (NASDAQ:INTC) fans. The server and consumer business on the semiconductor side is dead. PCs could be due for a bounce in 2014 due to a Windows XP refresh cycle, but with Intel so heavily exposed to PCs and servers, I honestly can’t recommend investing in the company.
IBM, on the other hand, did fairly well this past quarter. What’s saving the company is its openness to change, and the willingness to sell services, software, and support. The demand for servers will go up, but the way the market is structured, it seems that hardware is dead and service remains king.
The article Intel’s Datacenter Problems originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and International Business Machines. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
