Is Intel's Cloud Story Leaking Air?

By now, you should be well aware that Intel (NASDAQ: INTC  ) has arrived late to the mobile computing party. In an effort to justify its tardiness, Intel has hinted that it still benefits from the rise of smartphone and tablet computing. Intel believes that 122 tablets or 600 smartphones creates enough Web traffic to occupy one server. In other words, Intel's server sales should theoretically be correlated to smartphone and tablet sales, which remain heavily reliant on cloud computing.

Breaking it down
During the fourth quarter of 2012, worldwide smartphone shipments increased by 67 million devices year over year, and tablet sales increased by and 22.6 million units. Based on Intel's estimations and its roughly 90% share in the server market, it would imply that an additional 267,000 servers would have shipped during the quarter. However, during the fourth quarter, Intel's server unit volume actually declined by 1% year over year, suggesting that either Intel grossly overestimated the impact of mobile computing devices on its server business, the data center is evolving away from the monolith, or perhaps none of the above.

There could easily be a quarter or so of lag between mobile-device shipments and corresponding server demand. It may prove wise to compare Intel's first-quarter results against mobile-device shipment data from the fourth quarter to see if there's any correlation. Yesterday, Intel reported its first-quarter results, showing that its data-center group experienced a 6% rise in unit volumes year over year yet experienced a 6% sequential decline in volume. For me to give this storyline credibility, I'd like to see both sequential and year over year increases in unit volume, since mobile device adoption has been on a tear.

Truth be told
Unfortunately, there doesn't seem to be enough supporting evidence to suggest that Intel indirectly benefits from the rise of mobile devices. Ultimately, if Intel wants to benefit from the rise of mobile computing, it should probably make its way into more mobile computing devices than talk about the data center.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.


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  • Report this Comment On April 17, 2013, at 11:25 PM, stretcho44 wrote:

    IDC says that Q1 shows Data Center Revenues started back up as they routinely do. I suspect that you chose the only quarter in Intel history to support your story.

    Intel profit dives 25 percent amid PC market slump

    A bright spot was Intel's Data Center Group, where revenue was up 7.5 percent

    By Agam Shah

    April 16, 2013 07:26 PM ET

    IDG News Service - Intel reported a drop in profits and revenue for the first quarter, as the biggest PC market slump in recent memory weighed on its business.

    Intel reported a profit of $2.05 billion for the quarter ended March 30, down 25 percent from a year earlier. Revenue was $12.6 billion, Intel said, a drop of 2.5 percent.

    About two-thirds of Intel's revenue comes from its PC client group, which makes chips for laptops and desktops. Revenue from that division was down 6 percent year on year, to $8.0 billion.

    Its Data Center Group, which sells server chips and other enterprise hardware, fared better. Quarterly revenue from that division was up 7.5 percent year-over-year, to $2.6 billion.

    Despite the drop in profit, Intel managed to do slightly better than analysts had forecast. Excluding one-time items, Intel reported pro forma earnings for the quarter of $0.41 per share, a penny ahead of the consensus analyst estimate, according to Thomson Reuters.

    http://m.computerworld.com/s/article/9238435/Intel_profit_di...

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