Data Center Group Will Likely Drive Intel’s Near-Term Growth

The Intel logo is displayed at the Intel stand at the 2018 CeBIT technology trade fair on June 12, 2018 in Hanover, Germany. (Photo by Alexander Koerner/Getty Images)

Intel (NASDAQ:INTC) has seen solid growth in the recent quarters, primarily led by its Data Center Group, which is benefiting from cloud computing. The company is seeing strong demand for Xeon Scalable, and it has aided the pricing growth. This trend will likely continue in the near term, and drive the earnings growth for Intel. We have created an interactive dashboard ~ What Is The Outlook For Intel ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Expect Data Center Group To Lead Earnings Growth

We forecast Intel’s Data Center Group revenues to grow around 20% to a little under $23 billion in 2018. The segment is benefiting from its cloud business, as well as high performance products, such as Xeon Scalable. Growth in cloud computing will result in greater sales of bigger, faster, and higher-end servers at the expense of cheaper ones, and the company will benefit from server virtualization. The segment revenues have grown by over 25% in H1 2018. Higher demand for Xeon Scalable has aided the pricing growth, and this has resulted in better margins. We forecast the segment adjusted EBITDA margin of 51% for the full year.

Looking at Client Computing, the segment has seen low single digit revenue growth over the last few years. However, we forecast a mid-single digit growth in 2018, primarily due to an expected modest increase in PC TAM (total available market) after 6 years of decline. Note that Intel still dominates the PC market, despite strong growth in AMD’s Ryzen products, and any growth in TAM will bode well for the company (Also See – AMD’s Near Term Growth Can Be Linked To Its Radeon And Ryzen Products). While we forecast segment revenues to trend higher, the segment EBITDA margin may see a slight decline for the full year, due to a higher costs associated with the 10nm products. Among other segments, the Internet of Things has been doing well of late, and this trend will likely continue in the near term, and beyond, primarily due to an overall increase in the market size.

Overall, we expect the Data Center Group to drive the company’s near term growth, led by Xeon Scalable. We currently forecast earnings of $4.15 per share in 2018, and a price to earnings multiple of 14x by the end of 2018, to arrive at our price estimate of $59 for Intel, which is at a premium of around 20% to the current market price.

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