It's All About Server Chips for Intel

Intel (Nasdaq: INTC  ) had a great fourth quarter -- in the data center.

Three of the chip giant's four reported divisions reported flat sales compared to last quarter, but server chips sold like hotcakes with a 15% sequential jump. That's good for the product mix, since server processors tend to live on the high side of the price list, and average selling prices indeed enjoyed a small nudge.

The company doesn't necessarily expect the trend to last. Intel is working hard on mobile products, hoping to stake out some territory in tablets and smartphones before rival architectures from ARM Holdings (Nasdaq: ARMH  ) and MIPS Technologies (Nasdaq: MIPS  ) claim it all.

It would also be unreasonable to expect corporate spending to keep up this quarter's strength indefinitely. Catalysts such as testing of Microsoft Windows 7 systems and an aging corporate IT infrastructure will eventually run their course and drop that segment's results back to normal.

Nevertheless, Intel's management thinks big today. “2010 was the best year in Intel’s history," said CEO Paul Otellini. "We believe that 2011 will be even better." To make that happen, Intel is stepping up its capital investments in a big way, growing that cash-flow line item from $5.2 billion in 2010 to about $9 billion in 2011.

All told, fourth-quarter sales jumped by 8% year-over-year to $11.5 billion and non-GAAP earnings improved by 7% to $0.59 per share, both well ahead of Wall Street expectations.

The spending trends outlined by Intel's success point to good things for fellow enterprise-computing giants Cisco Systems (Nasdaq: CSCO  ) and IBM (NYSE: IBM  ) , and Big Blue can either confirm or refute that conclusion when it reports earnings on Tuesday night. Two days later, Advanced Micro Devices (NYSE: AMD  ) comes along to complete the picture of traditional computer chips. Until then, this was simply an impressive quarter for Intel, with unclear implications for the rest of the industry.

Did Intel hog market share in servers this quarter, or will AMD report strong data-center sales too? My crystal ball is a little cloudy today -- please discuss in the comments section below.

Want to read more about Intel? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Anders Bylund owns shares of AMD but holds no other position in any of the companies discussed here. Intel and Microsoft are Motley Fool Inside Value picks. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of IBM and Microsoft. Motley Fool Alpha owns shares of Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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Comments from our Foolish Readers

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  • Report this Comment On January 15, 2011, at 1:09 PM, techy46 wrote:

    Intel's been busy protecting the $55b enterprise CICS chip market for desktop, laptops and servers that actually do computing for enterprises and the internet. Meanwhile, a nice little $15b consumer market for smarrt phone and tablet chips has grown around ARM RISC chips that require much less processing power and watt usgage. So, now that market is large enough to warrant investing $3-7b in scaling X86 RISC down to 32nm and then 22nm to pick off those applications that will pay $15-25 per chips set (Snapdragon now at $16.30). I'd say Intel has put their $$$ where the return was greatest while waiting for the consunmer market demand to warrant their investment $$$.

  • Report this Comment On January 15, 2011, at 2:32 PM, propiloteab wrote:

    While analysts are quick to blast Intel, one should remember a couple things before dismissing them, as investors seem to be doing. Granted, tablets and smartphones are increasing exponentially, and obviously current trends point toward even faster growth in the future. While this is a market I wish Intel were already in, I'm comforted by knowing the power and money available to hop in this market. Should one doubt Intel's "buying power," take a look at the balance sheet. Moreover, even without Intel in the phone and tablet business, one should remember that there's a VERY high chance that the app you just downloaded on your ARM-based phone/tablet was channeled to your device via Intel servers and stations. So by that logic, the more phones grow, the more Intel grows. While I would like to see Intel venture in and dominate both areas, I'm comfortable where they are, as this whole "tablet rush" is extremely new and in its early stages. I also despise the notion that tablets are "cannibalizing" PCs. I have a PC running Window's 7 Pro, an Evo running Android, and an iPad running iOS. I use all of these devices, but when push comes to shove and I need to compute, I turn to my PC. Tablets are still very far from becoming a replacement for the PC, but if you listened to analysts, you'd be convinced that PCs already became the equivalent of a VHS. Businesses aren't upgrading (or maybe downgrading) to all tablets in the workplace, web programmers aren't sitting on the couch with their iPad, and homes aren't replacing their Dell's... at least yet. Again, the power and capabilities just aren't there. Years down the road, we can re-evaluate. I heard it said best on CNBC the other day... Tablets are consumers, not producers. In order for the internet to continue on as we know it, we'll have to have PCs. Be it a Mac or PC running Window's isn't important, as both use Intel Core processors. Just remember... regardless what device you're using or who made the processor inside, you'd be hard-pressed to receive any data on it that hasn't first been through an Intel chip somewhere.... Now that's what I call an enterprise!

  • Report this Comment On January 15, 2011, at 4:13 PM, laiddragon wrote:

    well said comments

  • Report this Comment On January 16, 2011, at 7:33 AM, midnightmoney wrote:

    Following on from what Propiloteab said, I'd like to add that I live in Central Europe, and do travel round this part of the world a bit. I haven't actually laid eyes on a single tablet here--not one, not ever--and maybe one in ten people has one of these silly smart phones so many seem to think make the business world go round. As the owner of a microbusiness I can say that neither a smart phone nor an ipad would help me earn more money or execute any better than I do now. On the other hand, laptops and pcs are ubiquitous, and I could not function without them. Beyond that, the price of an ipad is so laughably high in Poland, so far beyond the means of the average wage earner, that I cannot see them for all their novelty displacing 'standard' computers and their practicality in the foreseeable future. If it is intel that's going to keep computers running, I wouldn't from where I'm sitting underestimate them.

  • Report this Comment On January 16, 2011, at 8:39 AM, asH95 wrote:

    Intel’s acquisition of McAfee (IMO) telegraphed Intel’s decision to, retreat to the hills in an attempt to fortify the high roads, and lay stake to the hi-priced/profit server area. Intel’s Earnings specific to servers, shouldn’t be a surprise, and probably reflects Intel’s belief that Servers are where the profits will be (perhaps visualization, data centers will finally come to fruition). One thing seems apparent, after reading the many Sandy bridge benchmark articles- Intel cant make a cheap chip. Most Sandy Bridge processors are in systems starting $1999 (mobile)..yada, yada….I digress: Mobil - It would seem plausible Intel is more concerned with AMD’s Fusion, than ARM mobile products, as per recent interviews with Intel CEO Paul Otellini

    http://www.tomshardware.com/news/arm-cpu-project-denver-inte...

    http://www.theregister.co.uk/2011/01/14/windows_on_arm_meets...

    As vague as he may appear in the interview- all roads pass through Microsoft and the mature x86 platform - to the victor go the spoils

    asH

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