Intel: Wells Pounds Table on Server, Mobile Prospects

Shares of Intel (INTC) are up 12 cents, or 0.6%, at $20.34 after Wells Fargo’s David Wong reiterated an Outperform rating on the shares, and a $28 to $33 “valuation range,” calling it his “Top Pick.”

Wong raised his EPS estimate for this year to $2.10 from $2.02, writing that the company’s market for server chips “offers excellent growth potential,” while the company can do better in chips for client computing than most investors give them credit for.

On the server front, revenue and gross margin are going up and up, for Intel and Advanced Micro Devices (AMD) combined, helped by the flood of mobile devices and the consequent rise in cloud computing, writes Wong:

We think secular themes such as cloud computing and data traffic created by mobile computing (notebooks, tablets and smartphones) could drive x86 server-related processor growth in the mid-teens percentage range over the next several years [�] the server processor market has grown from below $2 billion in 2002 to a run rate of the order of $10 billion a year in 2012 [�] Intel�s server processor revenue growth was 7% for the three quarters of 2012 reported so far, though [sic] September 2012, compared to the company�s total revenues being down 1%. Intel�s server division benefits from the growth of smartphones and tablets. Intel has suggested in the past that 122 tablets generate enough data traffic to occupy 1 server, and 600 smartphone generate a similar amount of traffic. Gartner numbers suggest that about 170 million smartphones shipped in the September 2012 quarter, we estimate that for the full year 2012 more than 650 million smartphone might ship. Similarly with Apple (AAPL) reporting about 43 million iPad shipments in total for the first three quarter of 2012, ongoing growth of Android based tablets and the recent launch of Windows 8 and Windows RT tablets, Gartner estimates that worldwide tablet shipments in 2012 could be of the order of 110 million. Assuming about $1,000 of Intel content per server, these numbers imply that smartphone and tablet sales in 2012 alone could drive up to $2 billion of future Intel server chip revenue, though this number should perhaps be discounted somewhat to allow for some of these sales being replacement devices.