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Monday, January 05, 2015 4:24:20 PM
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Intel: MKM Ups to Buy on Data Center Surge
By Tiernan Ray
MKM Partners‘s Ian Ing today raises his rating on Intel (INTC) stock to Buy from Neutral, and raises his price target to $45 from $40, as part of a broad overview of end-market conditions for semiconductors in 2015, with one of the main themes being the explosion in data traffic that requires more server processing.
“We likely kept our neutral rating (with positive bias) for too long,” writes Ing, “as PCs stabilized, data center improved, and INTC demonstrated a flexible approach to succeed in tablets and access existing China consumer channels.”
Now, Ing likes “the setup” for this year, he writes, as the data center explosion is “just getting started”:
In addition to the Grantley server refresh, there are a number of 3rd party catalysts for datacenter upgrades over the coming quarters. On July 14, 2015, Microsoft will officially end support for Windows Server 2003. In July 2014, Microsoft reported that there are 12 million physical servers running Windows Server 2003 globally. Additionally, in Q3 of 2014, Broadcom began sampling its StrataXGS “Tomahawk” switch solution to lead customers to enable higher data center switching bandwidth. Tomahawk (below) packs up to 2 Tbps of switching performance and likely ships in volume in 2016.
In also lauds Intel’s “flexible” approach to trying to succeed, eventually, in newer markets such as mobile devices:
INTC chose the path of least resistance to accessing fully developed channels in China. In 2016, we would not be surprised by other practical non-organic actions to scale up INTC’s MCG as it plays catch up. Recall in May 2014, INTC announced a strategic agreement with Rockchip, a fabless semi company focused on mobile-internet SOC solutions. Additionally, in September 2014 INTC announced a 20% stake (costing $1.5B) in the holding company of Spreadtrum and RDA, both of which are fabless. Spreadtrum develops mobile chipset platforms and RDA designs, develops, and markets wireless SOCs.
Ing lists Intel as one his four top picks for this year, along with wireless chip makers Skyworks Solutions (SWKS) Qorvo (QRVO), Avago Technologies (AVGO).Ing’s parting advice to semi investors is to tread carefully in 2014:
We suggest semiconductor investors pick their spots carefully. In 2014, the Philadelphia SOX index was up ~30% largely on earnings multiple expansion. Earnings power increased to a lesser extent than multiples, and is now ~6% below prior peaks from 2011.
Intel shares today are down 20 cents, half a percent, at $36.16.
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