Two Ways to Profit From Explosive Growth in Micro Servers: Intel Corporation (INTC), ARM Holdings plc (ARMH)

There’s little doubt that heading into 2013 and beyond, two of the fastest major growing areas in the IT industry are cloud and mobile computing. The potential growth in these two key segments will go a long way in determining the success, or lack thereof, of companies supplying equipment and services in these areas.

According to a recent report by research firm IHS, the fastest-growing area within the mobile and cloud computing markets is, hands down, micro servers. The numbers might seem small compared to the volume of chips used in mobile devices or total smartphone sales, but that’s going to change — and change quickly. Explosive growth brings with it opportunity, and there are a couple of IT stocks poised to take advantage when the micro server market takes off.

The possibilities in micro servers
Unlike big data centers, housing miles of cables with massive storage capabilities, micro servers meet a more specific need in the mobile and cloud computing marketplace. Using single or multiple low-power processors, micro servers share infrastructures with similar devices and can be “stacked” to provide more storage and improved efficiencies, all at less cost. Why haven’t we heard more about these little wonders? A mere 19,000 micro servers were shipped in 2011, hardly a blip on the IT radar. But that’s about to change, in a big way.

As per IHS, 88,000 micro server units were shipped in 2012; phenomenal growth from the paltry 19,000 the year before. This year? The micro server market will more than triple, with just shy of 300,000 units shipped, and that’s expected to grow to over 1 million by 2016. Clearly, there are revenue opportunities to be had for those ready to seize the opportunity.

Industry-leading Intel Corporation (NASDAQ:INTC) is one of those primed to take advantage of the burgeoning micro server market, a specialty it introduced in 2009. Growth in its data center business unit demonstrates Intel is already shifting its focus to the mobile and cloud computing markets, and its working. As its PC and architecture groups decline, as they did again last quarter, the company’s data center revenues continue to grow. As for mobile computing, several smartphones already have, or will be, released with Intel’s made-for-mobile Atom processor inside. And outgoing CEO Paul Otellini has made no secret of his objective to make Intel a major player in mobile.

Another possible arrow in Intel’s micro server quiver is its soon-to-be-released fourth-generation Haswell processor, coming to a tablet near you this year. After a slight hiccup, the faster, more efficient Haswell mobile chip should hit theshelves in June. Intel’s new processor could be an ideal complement to the micro server market, with its longer life and faster speeds. A dividend yield of more than 4% and a trailing P/E below 10 also qualify Intel as a solid income alternative with some interesting, but certainly not definite, potential growth plays.

At $1.84 billion in market cap, Intel rival Advanced Micro Devices, Inc. (NYSE:AMD) is often an afterthought in the world of chip makers. But it’s AMD’s size, particularly relative to Intel’s $104 billion market cap, that makes explosive growth in micro servers so intriguing. It will take fewer micro server-related sales to move the needle for the company, with its $5.4 billion in annual revenues, than Intel and its $53.5 billion.