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Intel Impresses Investors With New Server Chips

unveiled its newest line of microprocessor chips for servers and cloud data centers this week and managed to impress some on Wall Street with larger-than-expected performance improvements.

Intel says its new Xeon Scalable line boost performance 65% on average from its prior generation of chips. But the news comes as Intel faces slowing sales for server chips and fierce competition from Advanced Micro Devices, and others. Data center sales rose just 6% in the first quarter, down from a 9% increase a year earlier and a 19% jump in the same quarter of 2015. The server chip slowdown and fears of increasing competition have hit Intel’s stock price, which at $34.07 on Wednesday, is down 6% so far this year.

Some analysts didn’t even wait to hear about the new chips. Mark Lipacis at Jefferies & Co downgraded his rating on Intel to “sell” on Monday. But Tuesday’s announcements, with many impressive benchmark results, gave plenty of ammunition to Intel’s supporters on Wall Street.

“Sentiment on Intel, which didn’t seem like it could go any lower, falls weekly with each additional downgrade,” writes Barclays analyst Blayne Curtis, who expects Intel stock to reach $45. “We clearly have a non-consensus view that Intel is not a complete zero in the AI world and that the ‘tectonic shift’ is more of a startling earthquake that got everyone’s attention but didn’t immediately throw California into the ocean.”

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With more comparisons to AMD’s new Epyc chips due soon, Curtis expects the results will strongly favor Intel. “This launch and subsequent benchmarks from Intel and AMD (theirs are still embargoed) should show that Intel is still squarely ahead across the full range of tests and not just a few cherry picked ones,” he writes.

analyst Harlan Sur was also impressed by Intel’s “highest level of performance improvement in over a decade.” In combination with some other products Intel is pitching to server customers, the company “continues to set a high barrier to entry for competitors and we remain optimistic that Intel's datacenter franchise will continue to be the growth and profitability engine for the company going forward,” Sur writes.

With those related products, like storage drives and memory chips, Intel is looking to boost revenue from datacenter customers by expanding beyond just selling microprocessor chips. A new effort called “Select Solutions” combines various products into offerings aimed at different market segments with more specialized needs.

That got the attention of Patrick Moorhead, president of Moor Insights & Strategy. The move could help Intel increase revenue by competing in segments it had not attacked previously, he notes.

“Intel is even building near-engineered solutions to the table with Select Solutions, an indication that it is moving up the food chain and also enabling a much larger market-basket,” he writes. “By increasing the ‘market basket’ with workload-optimized technologies and Select Solutions, I see growth potential for the company in spaces they haven't historically achieved high degrees of market share while defending their CPU turf.”

The performance improvements should be more than enough to fend off AMD, which unveiled its entirely revamped server chip line up last month, and boost revenue growth in the server chip unit to 8% to 10% a year, Macquarie Capital analyst Srini Pajjuri says.

“We walked away comfortable with our view that the server segment (DCG) has upside potential this year,” Pajjuri writes in a report on Intel. “We expect AMD to gain a few points of share over the next couple of years in the low-end (SMB, web servers, storage etc.) but believe that Intel's DCG can sustain 8-10% growth driven by strength in the high-end and growth in adjacent markets.”

analyst Toshiya Hari was more sanguine, offering only “relatively muted expectations” for the new Xeon chips. But Hari also forecasts minor gains for AMD in the datacenter. The greatest threat is from customers switching to graphics processors to meet more of their data center needs. Nvidia’s GPUs are “the more significant competitive threat,” Hari writes.

And Stacy Rasgon at Bernstein Research, who rates Intel “underperform” with a $30 price target, was completely unimpressed, noting that some of the company’s demos compared new chips costing $10,000 to older chips costing $4,000. And while Intel’s most expensive new Xeons may outperform AMD’s Epyc chips, that’s not the market segment AMD is targeting.

“AMD’s stated strategy is in fact to target the bottom half of Intel’s stack, where the latter will be providing fewer features (vs AMD’s practice to deliver fully- specced offerings across their stack),” he wrote. “In a battle of like-for-like priced offerings in the volume part of the market INTC’s offerings may face more pressure. In general, while we aren’t prepared to dive into the AMD bull case we believe at a minimum Intel is about to go from competing against nothing, to competing against something.”

 

See original article on Fortune.com

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