Intel (NASDAQ:INTC) is going to launch its next generation CPU (central processing unit) architecture Sandy Bridge in January 2011. The Sandy Bridge processor is essentially a CPU that has GPU (graphics processing) integrated within. The graphics processing core of Sandy Bridge processors has been improved to a point where it can compete against entry-level discrete graphics cards. 
While this will help Intel to compete against AMD’s (NASDAQ:AMD) fusion processors and maintain its processor market share, it will also aid the company’s processor ASP (average selling price).
We estimate that Intel’s notebook processors contribute roughly 47% to its stock value, while desktop processors contribute another 11%. We maintain a price estimate for Intel at $26.28, roughly 24% ahead of market value.
13% Upside to Price Estimate if ASP Declines Halt
The model of GPU integrated within the CPU will eventually replace integrated graphics in the market. This is due to the improved performance which will encourage system makers to drop the usage of integrated graphics and go for hybrid CPUs (CPU+GPU).
Considering that Intel’s Sandy Bridge will effectively replace some of the graphics products, it is likely to be higher priced than previous generations of CPUs. This can mitigate recent ASP declines or even halt them altogether. Intel’s price estimate can see a potential upside of close to 13% if ASP declines for its notebook and desktop processors halt.
Drag the trend-lines in the charts below to see the impact of various notebook and desktop processor pricing trends on Intel’s stock value.
We believe that Sandy Bridge will help Intel successfully grab integrated graphics business from Nvidia (NASDAQ:NVDA), sparking upside to Intel’s stock value. For example, Apple (NASDAQ:AAPL) appears poised to go with Intel’s CPU for its MacBooks, moving away from Nvidia’s integrated graphics chipsets. 
We don’t see Intel’s hybrid CPUs posing a threat to Nvidia’s discrete GPU business at this point, however, as hybrid CPUs do not have the capability to challenge the performance of mid to high range discrete GPUs just yet.
- Intel: Sandy Bridge Processor Is the Pentium of Our Days, Xbit Labs, 17th Nov 2010
- Apple to Tap Intel’s Graphics for Future MacBooks, CNET News, Dec 9 2010
Disclosure: No position