Citigroup chip analyst Glen Yeung reiterates a Neutral rating on shares of Intel Corporation (NASDAQ:INTC), while cutting his price target from $25 to $23, after reducing estimates for this quarter and next to account for weaker-than-expected PC demand. Yeung says:
Our checks with the PC supply chain suggest Intel will launch the desktop version of its new Haswell architecture in April, notebook in June. Because Haswell is not socket compatible with Ivy Bridge (the prior generation), this has the effect of reducing demand for Ivy Bridge ahead of the Haswell launch.
While the slowdown in PC demand is nothing new, cutting the price target on Intel’s stock based on PC weakness is a little surprising. I feel Intel has a real shot to be a force in networking, datacenter, and the nascent dense server market.
Intel’s networking initiatives
Intel Corporation (NASDAQ:INTC) wants to dominate the networking and storage space, each worth about $25 billion a year in sales, just as much as it ever wanted to dominate the server racket, which accounts for around $50 billion a year in sales.
And if its goal is to double the revenue of its datacenter and Connected Systems group to $20 billion by 2016 — as general manager Diane Bryant reiterated in her presentation at Intel Developer Forum recently, then it is going to have to get a much bigger piece of the merchant silicon and software racket relating to switches.
Intel has acquired a series of strategic assets (including Fulcrum Micro, Wind River, McAfee, and Infineon), enabling the company to more deeply penetrate the datacenter market over the next decade. Intel’s addressable market moves beyond computing and into storage, switching, security, and specialty network equipment. Overall, Intel’s portfolio of acquisitions seeks to enable commoditized hardware platforms, while leveraging its value proposition in x86 processing driven by Moore’s law.
According to Bryant, the company is not just providing the hardware components to OEM customers in the switch racket, but also a full network operating system that supports software-defined networking. This operating system is based on the Linux kernel, and supports OpenFlow 1.0 control protocols and VXLAN, the extended LAN virtualization protocol espoused by VMware.
Meanwhile, Broadcom Corporation (NASDAQ:BRCM) announced that its new “Trident II” ASIC also supports OpenFlow 1.0 control protocols and VXLAN, and has enough oomph to drive over a hundred 10 Gigabit Ethernet ports – or lower numbers of 40GE and 100GE ports.
Intel introduced crystal forest
Intel Corporation (NASDAQ:INTC) introduced the Crystal Forest chipset a year ago, which has specific hardware and software-driven features that could speed up data processing on a network. There will be need for switches with high throughput for chip-to-chip connections, and Intel’s prototype, known as Seacliff Trail, is capable of processing data at more than 1 terabit/sec or 8 terabits/sec of data throughput per rack.
The Seacliff Trail reference platform also includes a 22 nanometer Core processor, which is part of the Crystal Forest AMC control plane module that does deep packet inspection, packet acceleration, encryption / decryption, and other kinds of co-processing for the Fulcrum ASIC in the switch.
Intel vs. competitors
Intel Corporation (NASDAQ:INTC) suffered a minor setback in the server market earlier this month with the news that its former partner, SeaMicro, is being acquired by Advanced Micro Devices, Inc. (NYSE:AMD). But Intel said it was internally developing technology to remain competitive in the dense server market.
