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Are Intel's Growth Days Over?

By Ashraf Eassa - Dec 8, 2017 at 5:13PM

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Intel's foray into new markets means it has plenty of growth opportunities in front of it.

Between 2012 and 2015, chip giant Intel (INTC -2.86%) was growth challenged. After achieving record revenue and earnings per share in 2011, the company saw its sales dip in 2012 and then drop slightly again in 2013. 

Intel saw its revenue hit a record $55.9 billion in 2014, surpassing the 2011 record of $54 billion, thanks to unusually strong personal computer chip sales -- believed to be a result of the end of life for Windows XP, driving businesses to buy new computers -- and strong growth in its data center group (DCG) business. 

However, in 2015, Intel saw its sales dip slightly to $55.4 billion.

An Intel desktop processor.

Image source: Intel.

Things began to pick up for Intel after that. In 2016, Intel saw revenue surge to $59.4 billion, and the company's most recent revenue guidance for 2017 calls for $62 billion in revenue .

Can Intel continue to grow sales from here? 

Intel's expectation

At its financial analyst day back in February, Intel CFO Robert Swan told investors that the company is currently planning to grow revenue at a "low-single-digit" percentage over the next three years. That growth is expected to be as a result of two competing forces: a low-single-digit decline in the company's client computing group, which primarily sells processors and other components into the declining personal computer market, and double-digit revenue growth in what Intel calls its "growth" businesses: DCG, the non-volatile memory solutions group (NSG), the Internet of Things group (IoTG), and the programmable solutions group (PSG). 

I think it's reasonable to expect DCG to grow, considering it's exposed to some attractive growth trends, including cloud servers, network logic chips, and even memory modules. NSG, which sells products into the booming solid state drive market, also stands a good chance of delivering solid growth in the years ahead. 

Intel's IoTG is also exposed to a lot of growth areas and has been exhibiting solid growth in recent quarters, so long-term growth there seems reasonable to expect, too. 

And finally, Intel seems to be betting on PSG, formerly known as Altera to grow as well. Last quarter, PSG grew 10% year over year, and if Intel's stated efforts to proliferate PSG's technology across a wider range of markets and grow PSG's market share prove successful, then that growth rate could potentially accelerate. 

When all is said and done, I think Intel has a lot of growth opportunities ahead of it. With strong execution, Intel's plan to grow sales at a low-single-digit clip over the next few years seems realistic. 

Growth not over, but growth gets harder

Though opportunities seem to abound for Intel, the trick, especially over the long term, will be to execute consistently to seize on those opportunities. 

Indeed, the more attractive the growth opportunities a company goes after, the more likely other companies will want to try their hands at capitalizing on those opportunities. 

A wafer of Intel Xeon processors in the background with completed and packaged Xeon chips in the foreground.

Image source: Intel.

Long-term, Intel is likely to face incredibly fierce competition. That competition isn't just going to go after the new markets Intel is also fighting for, but it's going to force Intel to defend its share in its traditional strongholds like personal computer processors and server processors. Considering how large Intel's core businesses are, significant share losses in those markets could limit Intel's growth even in the face of the opportunities in front of it. 

So Intel has two big long-term challenges ahead of it: Capitalize on new growth opportunities, while defending the large streams of revenue it has already cultivated.

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