The coronavirus epidemic in China is disrupting supply chains and seasonal buying trends across the tech sector. The chip sector, which was already pressured by the evolution of the trade war into a tech war, is facing the brunt of those challenges.

To better understand this crisis, we should examine Intel (INTC -1.12%), the world's largest producer of x86 CPUs for PCs and data centers. Let's discuss three main ways the epidemic will impact Intel's business, and what it means for other tech companies.

Intel workers in a lab.

Image source: Intel.

1. Over a quarter of its revenue is at risk

China is Intel's largest market. The company generated $20 billion in revenue, or 28% of its top line, from the region (including Hong Kong) in fiscal 2019. Nearly 10% of Intel's net property, plants, and equipment is also based in China, and its largest facilities are located in Chengdu and Dalian.

China is the world's largest PC market and one of the top producers of supercomputers and hyperscale data centers. It's also one of the top consumers of memory chips. China is gradually reducing its dependence on American technologies, but its homegrown CPUs remain much slower than Intel and AMD's (AMD -1.00%) latest chips.

Intel's revenue from China rose 27% in 2018 and another 6% in 2019, even as it struggled with the ongoing chip shortage and trade war. Intel doesn't break down its Chinese revenue by end market, but investors should assume that the coronavirus outbreak and China's economic slowdown will curb the region's demand for its PC, data center, and memory chips.

2. The coronavirus crisis could ease its CPU shortages

Intel's toughest headwind over the past year was a chip shortage caused by the challenging development of its 10nm chips and a production bottleneck for its 14nm chips. Earlier this year, Intel predicted that its chip supplies would normalize by the second half of 2020.

AMD isn't suffering from any chip shortages, since it outsources the production of its new chips to TSMC (TSM 0.08%) instead of using a first-party foundry like Intel. AMD's stable chip supplies, along with new CPUs that nearly matched Intel's performance at lower prices, enabled it to erode Intel's shares of the PC and data center markets.

However, a recent DigiTimes report claimed that the coronavirus outbreak could inadvertently ease Intel's chip shortage issues by throttling PC upgrades across the country. That slowdown would reduce Intel's revenue, but it could also give some much-needed breathing room against AMD as it ramps up its 10nm chips.

A desktop PC.

Image source: Getty Images.

3. A potential disruption of its memory business

Intel generated $4.4 billion, or 6% of its revenue, from its NSG (non-volatile memory solutions group) business in 2019. This business produces NAND memory chips and other storage products.

That unit's revenue only rose 1% during the year, mainly due to cyclically low market prices for NAND chips and competition from rivals like Samsung. Intel produces a large portion of those chips in China.

Last year it expanded its memory production facilities in Dalian, a city in Northeast China, to ramp up its production of 3D NAND chips. Dalian remains far from the outbreak's epicenter in Wuhan, but precautionary measures could curb Intel's production of these next-gen memory chips.

The key takeaways

The coronavirus outbreak will likely throttle Intel's growth as demand from its top market withers and supply chain disruptions strike its memory business. That slowdown could ease Intel's chip shortage, but it's unclear if it can capitalize on that shift after more than a year of execution issues. It's also unclear if Intel can regain any market share from AMD as CPU demand in China dries up.

In short, the coronavirus crisis remains a threat to Intel's business. Investors should be cautious about the chipmaker's prospects in 2020, especially after the stock rallied nearly 50% over the past six months. The stock admittedly looks cheap at 13 times forward earnings, but that valuation is based on forecasts which likely haven't factored in the full impact of the coronavirus outbreak yet.