By Wallace Witkowski, MarketWatch
MarketWatch photo illustration/iStockphoto
Intel Corp. is expected to see strong sales growth in their data center business for the rest of the year as companies continue their migration of assets to the cloud but PC sales may reach a saturation point.
Intel /zigman2/quotes/203649727/composite INTC +2.98% reports quarterly earnings after the market close Thursday.
Intel started off 2020 with a reversal from a difficult year, reporting that it broke the $20 billion quarterly sales mark for the first time as its fastest-growing segment, data-center chips, surged 19% to $7.2 billion. That time — when China was reporting 830 cases of COVID-19 with 26 deaths and the U.S. had just confirmed its second coronavirus case — seems a world away now after the coronavirus spread across the globe and sent most Americans into their homes to avoid contracting the virus.
Now, with the U.S. leading the world in COVID-19 cases and deaths, millions of employees who still have jobs in the U.S. have been working from home for four months while millions of students will likely keep taking take lessons online when classes resume in the fall. That’s kept companies like Zoom Video Technologies Inc. /zigman2/quotes/211319643/composite ZM -1.78% wildly popular while stretching the limits of older hardware. Much of that traffic is passing through cloud data centers like those maintained by Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +2.55% , Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +0.78% and Alphabet Inc.’s /zigman2/quotes/205453964/composite GOOG +1.35% /zigman2/quotes/202490156/composite GOOGL +1.36% Google, which will need new chips to expand capacity.
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At the same time, businesses keep moving assets to the cloud, further fueling data center growth. With PC, server and data-center sales representing the majority of Intel’s business, there’s little question that the chip giant could benefit from a sales surge thanks to all those dynamics. In its previous earnings report, Intel tempered those expectations.
When it reports the first three-month period during the shelter-in-place orders in many U.S. states on Thursday afternoon, Intel is expected to show gains from PC shipments seeing a big uptick, based on data from industry tracking firms Gartner and IDC. That may not last long, however, as experts expect PC demand to soften later in the year.
Data-center growth, though, is expected to be “unrelenting,” Maribel Lopez, principal analyst at Lopez Research, told MarketWatch in an interview.
“What we’re seeing is that people are still moving workloads to the cloud like crazy,” Lopez said. “I expect the data-center business for Intel to be healthy through the year.”
Which chip company wins the most cloud business is still a question. Nvidia Corp. /zigman2/quotes/200467500/composite NVDA +1.25% has made a huge push into the data center space with its GPUs , and has been fighting it out with Intel lately over which company is the largest U.S. chip maker by market capitalization.
“The AI landscape is largely being played out in the data center now, which was why [Nvidia] spent all that money on Mellanox,” Lopez said, referencing Nvidia’s acquisition of Mellanox Technologies Ltd. for nearly $7 billion.
“I would be worried about Nvidia every day if I were Intel,” Lopez said. But does that mean we’ll see Intel losing considerable market share to Nvidia this year?
“Here’s where it gets tricky,” Lopez said. “I see them losing share to Nvidia but because growth in data center is strong, its a little difficult to figure out how much share they may or may not be losing.”
Then there’s Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD +1.83% muscling in on Intel’s turf in the CPU arena with its 7-nanometer products when Intel struggles to break out its 10-nanometer products. In chip parlance, nanometers, or nm, refers to the size of the transistors that go on a computer chip, with the general rule being that smaller transistors are faster and more efficient in using power.
On Wednesday, AMD saw its shares rise to their highest level since COVID-19 was declared a pandemic after the company announced release of its Ryzen 4000 series of 7-nm desktop chips aimed at the PC market.