Shares of Intel
(INTC) are down 68 cents, or 2%, at $33.20, in early trading, after Jefferies & Co
.’s Mark Lipacis
cut his rating on the stock to Underperform from Hold, and cut his price target to $29 from $38, warning that the company is the most in danger of a new wave of computing, parallel processing.
Lipacis makes the case that parallel processing computing, best exemplified by Nvidia
(NVDA), on whose shares he has a Buy rating, is the fourth big changing in computing, following mini computers, PCs, and smartphones:
There Have Been 3 Tectonic Shifts in Computing. Every 15 years, an accumulation of technical innovations translates to tectonic shifts in the computing model. In the 60s the industry shifted from Mainframes to Mini-Computers, in the early 80s it shifted to PCs, and in the late 90s it shifted to a cell phone / datacenter model. Each computing model shift brought a shift in the beneficiaries: IBM in Mainframes to DEC in MiniComputers, to INTC/ MSFT in PCs, to AAPL/Samsung/INTC/MSFT in the cell phone / datacenter model. We Believe We are at the Start of the 4th Tectonic Shift Now, to a parallel processing / IoT model, driven by lower memory costs, free data storage, improvements in parallel processing hardware and software, and improvements in AI technologies like neural networking, that make it easy to monetize all the data that is being stored.
He writes that Nvidia’s chips are gaining on Intel’s in the data center
NVDA’s datacenter business has grown 200% YY over the past 3 quarters and is now 10% the size of Intel’s DCG. At the same time, INTC’s server business has decelerated to 6% in 1Q17 from double digit 3-yr and 5-yr CAGRs. We model DCG revenues to decelerate to 5% in 2018 from 7% in 2017. Near term, we expect INTC to benefit from the official ramp of its Purley server platform–we note that it has already been shipping with the largest hyperscale cloud providers (Google et al).
There’s also competition from Advanced Micro Devices
(CAVM), and Xilinx
(XLNX), any of whose shares he would recommend over Intel’s:
AMD has reentered the x86 server market for the first time in years, and MSFT’s announcement for Windows support on ARM is a watershed, making CAVM’s ARM-based ThunderX MPU a scalable alternative to Xeon in the datacenter. In FPGA, we think XLNX’s SDAccel adds a capability that INTC’s Programmable Solutions Group (Altera) has yet to build. Finally, we think AMD’s Zen desktop MPUs chip away at INTC’s core solutions.
Lipacis’s note comes a day before Intel holds a media event in Brooklyn, New York for the unveiling of its latest server processor chip, “ Purley
You can tune into that announcement, starting at 11:30, Eastern time, by signing up for the webcast on Intel’s news Web site.