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Is Intel's Cloud Story Leaking Air?

By Steve Heller - Apr 17, 2013 at 8:30PM

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Intel claims its data-center group benefits from mobile computing. Should investors take this with a grain of salt?

By now, you should be well aware that Intel (INTC 0.20%) 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.

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