Intel (NASDAQ:INTC) competes with Advanced Micro Devices (NYSE:AMD) and Nvidia (NASDAQ:NVDA) in the PC microprocessor and graphics businesses. We estimate that about 26% of Intel’s value comes from server microprocessors due to its supreme command in this market. But could this be at risk given recent developments? Below we examine the possibility of a drop in Intel’s market share in this space and how it could affect the company’s stock value.
Our price estimate for Intel stands at $27.23, a roughly 40% premium to market price.
Intel’s share in server microprocessors has shot up since 2006, from a value of about 75% to an estimated 92% in 2010. There have been multiple factors contributing to this meteoric rise, including the launch of the Xeon 5100 series of processors in 2006 that helped Intel fight back against AMD, and AMD’s own delay with Barcelona chips in 2008.
Climbing the mountain is tough, but staying on top is the real challenge. Can Intel maintain its lead?
(Chart created by using Trefis' app)
Bulldozer Has Success & ARM Makes Inroads
AMD looks set to release bulldozer server chips in Q3 of 2011.  The release would mark a major product refresh by the company and an attack on Intel’s dominant position in the server microprocessor market.
AMD believes that it will have an advantage over Intel given its image of the future of servers. As cloud computing takes hold, AMD believes that its server processors will be better positioned to serve the computing needs compared to Intel. As an analysis by The Register points out:
At cloud providers, their virtualized systems are now running at 80 to 90 per cent CPU utilization these days, according to Rozanovich, much higher than the 5 to 20 per cent utilization a typical x64 server had running a single workload. “When your CPU is running at that high utilization rate, HyperThreading doesn’t work,” says Rozanovich. “The system doesn’t have time or the capacity to hyperthread. So now, people running normal virtualized server workloads are turning off HyperThreading on their Xeon-based servers, just like supercomputer shops have been doing for years. 
So it looks like AMD is claiming that Intel’s HyperThreading technology will not be sufficient when server processors run at a high utilization rate, which is likely to be the case as more and more processing shifts to the cloud. If this turns out to be true, AMD could make a serious dent in Intel’s market share.
Besides this, there’s also the threat from ARM Holdings. The threat of ARM-based server chips may not be imminent to Intel as of now, but the possibility of ARM’s push into this arena a few year down the line is evident. ARM has this ambition and expects to generate revenue by 2014 or 2015. 
Will Intel still prevail despite these upcoming challenges? We currently forecast a steady decline in Intel’s server processor market share, but a more accelerated drop could threaten our $27.23 price estimate for Intel stock. Drag the trend line in the interactive chart above to examine alternative scenarios for Intel’s market share and see how these might affect the company’s stock value.
- AMD ”Interlagos” Bulldozer Benchmarks Leaked, tomshardware.com, Mar 24 2011
AMD gases up Bulldozers for Intel push back, The Register, Apr 4 2011
- Intel Flexes Muscles With New Server Processors In Face Of ARM Threat, The Wall Street Journal, Mar 15 2011