Intel Corporation (NASDAQ:INTC) has had a rough ride over the past year with shrinking revenues, slowing data centre growth and weak guidance.
The bad news looks set to continue with two new threats looming on the horizon. One is a very real and present threat from Qualcomm (NASDAQ:QCOM) which is just entering the server chipset market. The other is more of a potential threat, but is sourced from the same place as some of Intel's current grief - Apple Inc (NASDAQ:AAPL).
Last week, Qualcomm unveiled a new joint venture with the People's Government of Guizhou Province. The agreement sees both parties ponying up $280 million a piece to a fund focused on building "world class server chipsets in China."
Qualcomm also is bringing existing design and processes to the party to help jump start the operations. This is a major move as it draws on the significant experience of ARM Holdings (NASDAQ:ARMH).
Qualcomm has seen competition enter their core markets of mobile processors and model technologies, so this move seems to have come from increasing pressure on their own revenue streams.
The move is well timed too as Intel has recently been blocked from shipping server chips into China by the US government on the grounds that it opposes current national security interests.
Given that server chipsets and the data center have been the only bright spot on Intel's radar for the past two years, this move could really hit the chip manufacture where it hurts.
Intel has been feeling the heat from competitors increase over the past 3-5 years. Qualcomm has been a key part of that trend and is looking to turn it up a notch.
While all that has been happening, the rumor mill keeps grinding out ARM-based Macs on the back of their impressive performance gains. Anandtech recently did an iPad Pro review that might be sparking a few meeting requests internally at Intel.
With Apple now making up 7.6 percent of the PC market - which is 59% of Intel revenue, a move away from Intel would effectively shrink Intel revenue by about 4.6% overnight. One of the few PC vendors that is actually growing, Intel wouldn't want to lose Apple as a customer now.
Let's be honest. That isn't going to happen anytime soon. While the new A9X processor is a very impressive step up from the A8X, it certainly isn't on a par with Intel's mobile processing platform yet.
With Intel facing a shrinking PC market and a slowing server chipset market, they really didn't need further headwinds - yet that is exactly what they're facing.
With digitization strategies in full force, the mobile revolution and the IoT explosion, one would think that a powerhouse like Intel wouldn't be struggling to find growth, but that's exactly what is happening. Their razor sharp focus on standard computing chipsets was seen as a strength in days gone by... now it might be the thorn in their side.
Ultimately, they are forecasting medium single digit growth and we are in complete agreement.
Our engine is forecasting 6.63% growth over the next year and, as such, we see Intel having a fair value of around $36. That's a 24% premium to the current price, but we don't see the company as a buy.
With erratic earnings and returns dipping, we're maintaining our "hold" rating and suggest watching for signs that Intel is staving off the attacks before looking to enter.
Disclosure: I am/we are long AAPL.
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.