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Strong Demand for Intel, but It May Not Last

By Timothy Green - Apr 11, 2020 at 8:45AM

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The boom in remote working is great news for the chip giant. At least for now.

As stay-at-home orders and other social distancing measures became pervasive across the U.S. over the past month, demand for the products and services that enable working from home soared. Microsoft, for example, saw a 1,000% increase in video call usage on its Teams collaboration app.

Intel's (INTC -0.68%) chips are vital on both sides of the equation to make increased working from home possible: For workers, the majority of PCs are powered by Intel's processors. For corporations, cloud data centers, and service providers, Intel's server chips dominate the market.

Rising demand

Intel CEO Bob Swan revealed in a recent interview with Bloomberg Television that Intel is seeing strong demand across its product lineup. PC sales are up, driven by the need for adults to work from home and for children to learn from home. "Where our lives are disrupted and we need to do more and more things from our home, we need to ensure we have the technology at our disposal so things can go on as normal as possible," Swan said.

An Intel chip.

Image source: Intel.

While rival Advanced Micro Devices is gaining market share, Intel remains the clear leader in the market of PC chips. In the fourth quarter of last year, around 83% of PCs shipped were powered by Intel processors.

More people accessing services from PCs at home means higher demand placed on corporate networks and cloud data centers. Intel is even more dominant in the data center market -- its market share topped 95% in the final quarter of last year, although AMD is making progress there as well.

Demand for Intel's server chips has gone up as companies and service providers boost capacity to deal with increased usage. Some organizations are fast-tracking tech projects related to working remotely, according to The Wall Street Journal. Even if these projects are cloud-based, requiring no new hardware, they put increased demand on cloud data centers, which in turn need to buy more Intel chips to handle the surge.

This may not last

The rush to buy laptops and other equipment necessary for working from home won't go on forever. For one thing, most people who can work from home at this point are already doing so. Secondly, with the economy likely in a recession of unknown length and severity, sales of pricey laptops probably won't fare well in the year ahead.

On the enterprise side of things, companies may simply be pulling forward purchases they would have eventually made. Combined with a very weak economy, this raises the risk of a hangover in corporate IT spending. IDC expects global IT spending to rise by just 1% in 2020, down from a previous forecast of 4% growth. That estimate could prove overly optimistic if the economic slump is worse than expected. And spending in 2021 could be sluggish if the recovery drags on.

Intel is also dealing with competition from AMD across PCs and servers. If the demand environment turns weak, Intel may need to slash prices to prevent AMD from taking too much market share. The company has already enacted some de facto price cuts on some of its chips for exactly that reason.

Intel will report its first-quarter results on April 23 after the market closes. In all likelihood, the numbers will look good for the chip giant. But beyond the first quarter, Intel's results are unlikely to hold up as the economy reels from the pandemic.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft. The Motley Fool recommends Intel and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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