Intel And AMD: Teaming Of The Rivals
Intel Corporation (NASDAQ:INTC) has maintained its position in the product market as well as in the stock market. This mature stock is currently on the move and is expected to retain its impetus with several positive developments and innovations. The company also seems set to tackle competition in emerging segments such as artificial intelligence and machine learning.
Betting on Graphics
Intel is going big on graphics as it recently announced its collaboration with Advanced Micro Devices, Inc. (AMD) to develop discrete GPUs for new age computing devices such as ultra portable laptops, mini desktops and notebooks. The companies will be using their expertise in graphic chips and multichip processing to create products aimed at high-end computing users and gamers. While Intel is holding on to its leading position in the chip segment, AMD is a leader in the graphics field. In the future, graphics is going to be key to the market as Intel tries to maintain its position in the fast-changing landscape. GPUs are primarily used in graphics intensive fields such as gaming. But with the advent of graphic-driven computing, the importance of GPUs has grown beyond the niche gaming market. The current fastest growing technologies such as Internet of Things (IoT), machine learning (ML) and connected devices are further going to increase the usage of GPUs. These new technologies also will demand better quality of GPUs to cope with the ever increasing stream of graphics. In such a scenario, the collaboration between these two behemoths makes a lot of sense as the synergies between these two companies may help them in gaining efficiencies. Intel is expected to provide AMD with vital financial resources while AMD will furnish Intel with its superior GPU expertise.
Image source: Intel newsroom
The collaboration with AMD opens a new chapter for Intel as both the companies are widely considered to be competitors in the market. However, despite their much hyped rivalry, these companies have more to gain from each other by joining hands. While the companies compete with each other in the chip segment, their core competencies are in the different sub-segments. Intel, on account of its gigantic presence in the chip segment, dominates all the sub-areas while AMD is mainly concentrated in the lower end of the market, with more emphasis on providing chip power to products with smaller computing footprints. However, this also enables AMD chips to be more efficient in terms of power consumption, making them highly suitable for portable devices. This competency can prove to be highly lucrative in upcoming fields such as IoT and smart devices. Intel thus stands to benefit from its latest collaboration with AMD.
The move is expected to provide a solid boost to Intel’s presence in the market, and ultimately give a push to its stock price. The move underscores Intel’s interest in augmenting its position in the graphics market as it recently also announced the appointment of AMD’s Raja Koduri as the new senior vice president of its newly minted Core and Visual Computing group. Intel also has its eyes firmly set on artificial intelligence and ML segments and gaining edge in this market is impossible without a solid grip on GPUs. Koduri is known for his role in turning around AMD’s sagging fortunes in the market and bringing it back to the front of the market. It is expected that he would be able to achieve the same feat for Intel as well. Apart from this, the addition of a new product line to the company also will help in providing a spark to its stagnating revenue figures, which showed marginal year-over-year growth of 2 percent in the third quarter of 2017. Overall, the company’s latest collaboration, along with its revived focus on future oriented segments such as AI, signals good things ahead for the company stock.
According to Intel’s recent presentation at the UBS Global Technology Conference, the chip major is transforming from a PC-centric to data-centric approach for its product line. Data is the key to AI and ML or Deep Learning as Intel puts it. These technology models have reached acceptability in the market, and the company foresees the $49B market of 2016 growing to $69B by 2021. Demand for custom CPUs from Intel has increased from 18% in 2013 to 49% in 2017. This is where the synergy with AMD will be useful to the company.
Processor Growth to Continue
While Intel is looking to gain a foothold in futuristic segments such as AI, ML, IoT and so on, it is still performing solid in its niche processor market, which also is seeing quite a few dramatic changes. The company recently introduced a new portfolio of processors under the Kaby Lake Refresh moniker. The new chips are mainly a refresh of their earlier Kaby Lake processors. It is rumored that the company will be introducing a further advanced range of processors called Whiskey Lake in 2018. The details about the Whiskey Lake processor are still patchy, but the rumors underscore the fact that Intel is not resting on its laurels and is continuously pushing forward with new developments.
The biggest threat to Intel is the fast-changing nature of the market it works in. However, the company has managed to stay ahead of the competition on the back of several advantages it has such a prominent position, financial muscle and core competencies. It needs to gain similar strength in upcoming markets as well. Currently, it seems to be struggling in these new fangled markets such as AI and ML. A pertinent example in this case is Nvidia Corporation (NVDA), which has already developed sophisticated tools for self driving cars. While Intel is now looking to fill the gap with its new AMD collaboration, the results are yet to be seen and Nvidia will, in any case, have the first mover advantage. On the other hand, Intel still boasts of superior technological reservoir and financial strength, which may help in giving tough challenge to Nvidia.
Overall GPU shipments increased 9.3% from last quarter. Shipments of graphics add-in boards that use discrete GPUs also increased 29.05% from last quarter. 39.55% of PCs had discrete GPUs, an increase of 4.18%. AMD increased 8%, Nvidia increased 30% and Intel increased 5%. The increase is attributed to rising demand in gaming and cryptocurrency. That helped AMD and Nvidia gain market share, but Intel market share decreased. Intel’s collaboration with AMD will allow it to gain from the rising demand.
Intel stock performed well with over 22 percent growth in the past 12 months. However, most of this growth accrued in the past three months, which accounted for 20 percent increase in its stock value. Intel is a well-established stock with a strong dividend yield of 2.45 percent. While this mature stock is not a likely candidate if you are looking for a multi-bagger, it is a solid addition to any medium to long-term portfolio. Apart from its new collaboration and upcoming new products, Intel also is likely to benefit from tax reform, which is widely considered to be pro-corporate.
Disclosure: I/we 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.
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December 26, 2017 at 01:57PM