Why Intel Will Win With The New Data Center Solution

| About: Intel Corporation (INTC)

Intel (NASDAQ:INTC) has introduced the Intel Enterprise Edition for Lustre Software. The product will enable an enterprise's data center to process a big data workload. In this article, I will explain how the rise in the global data center IP traffic will enable Intel to increase its data center group revenues by 2% with the new product. This factor will enable Intel to improve its price multiples.

Why will the company accomplish the feat? The global data center IP traffic is showing a growth. According to the Cisco Global Cloud Index, the worldwide data center IP traffic will quadruple over the next five years. Consequently, a data center will need the solution capable of processing a big data workload. Intel will benefit because its new product has the capacity to cope with this requirement. This will translate to an increase in revenue for its data center group and improved price multiples.


Intel's sales growth is inevitable. Its data center group is well-positioned to know the apt solution in a data center setting. This accounts for its revenue growth on a year-on-year basis in 2012. In the full-year results, the group reported revenue of $10.7 billion, up 6% from 2011. In the fourth quarter, the data center group reported revenue of $2.8 billion, up 7% sequentially and up 4% on a year-on-year basis. In the first quarter of fiscal 2013, the data center group reported revenue of $2.6 billion, up 7.5% compared to same period in 2012.

Intel And The Big Data Development

Intel has carried out a number of initiatives to strengthen its data center group over the past few years. It created the Intel Distribution for Apache Hadoop to provide a data management solution for any enterprise application that analyzes a massive amount of a diverse data. Intel collaborated with Dell and Revolution Analytics to establish the Big Data Innovation Center in Singapore. Intel also introduced the Silvermont Architecture to deliver the energy efficiency needed by the solutions in a data center.

The Intel Enterprise Edition for Lustre will encourage a fast access to the data center. It has the ability to support the entire solutions in a data center environment. "Enterprise users are looking for cost-effective and scalable tools to efficiently manage and quickly access large volumes of data to turn valuable information into actionable insight," said Boyd Davis, vice president and general manager of Intel's Data Center Software Division.

Intel decided to develop the new big data tool to provide an enterprise-class reliability to the solutions in the data center. However, the company will profit from the development because the increased IP data center traffic has created the requirement for the software that can process a big data workload. The revenue prospect from the data center sector is important to Intel. It will enable the company to gain a head start over its rivals.

Looking at the company's data center revenues once again, we see that it shows a growth on a year-on-year basis. It is clear Intel's data center group is driving the revenues of the business unit group. So it can be said that the data center division is operating efficiently.

With a price to sales ratio of 2.39, Intel is trading cheaply, especially given that it has an impressive gross margin of 56.17%. The new big data product will increase the data center group revenues, improve the business unit group, and enhance Intel's earnings per share. Intel's investors will benefit from robust earnings that will establish a new benchmark for the company's performance.


How is Intel performing in relation to its competitors? With an EPS of $2.0, compared with $-1.0 for Advanced Micro Devices (NYSE:AMD), $0.93 for Nvidia (NASDAQ:NVDA), and $3.56 for Qualcomm (NASDAQ:QCOM), a price to earnings of 12.09, compared to none for Advanced Micro Devices, 15.37 for Nvidia, and 17.01 for Qualcomm, Intel is not doing badly. Nvidia, Advanced Micro Devices, and Qualcomm have the competing products to Intel's new solution. However, Intel's new tool will enable the company to be competitive.


There is a risk in buying Intel stock. The company's personal computer revenues are declining. Additionally, a few investors entertain some fear regarding its slow tablets sales. But based on the quality of the big data product and the growth prospects in the data center sector, we can say Intel will improve its data center revenues with the Intel Enterprises Edition for Lustre. Looking at its price multiples, we still maintain that investors should hold Intel for the long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.