'Rising Tide' for x86 Servers Lifting Intel, AMD
Stating it believes server sales are being underestimated by Wall Street, Broadpoint AmTech's latest report predicts both Intel and AMD will post better-than-expected earnings in the first quarter. A report from Broadpoint makes the argument that both chip makers will do better than expected because x86 server sales are poised to take off. No doubt IBM, HP and Dell are hoping that's the case.
Broadpoint analyst Doug Freedman said the server sales recovery will continue in 2010. Because these processors are more expensive and deliver higher profit margins, both chipmakers figure to exceed analysts' revenue and earnings targets.
Both chip firms have new high-end products out for servers. AMD (NYSE: AMD) released the eight- and 12-core Magny-Cours, while Intel (NASDAQ: INTC) is now shipping the eight-core Nehalem-EX and will introduce new Westmere-generation 32nm Xeon processors later this month.
Broadpoint projects server sales of approximately 14.1 million units this year, up 19 percent year-over-year and from its previous estimate of 13.9 million units. It expects more action in the first half of the year, with the second half cooling off to 7 percent and 5 percent year-over-year growth in the third and fourth quarter, respectively.
Intel could maintain its dollar share of around 90 percent but lose a small amount of unit share, currently at 88 percent, thanks to AMD's increasing strength in the two-socket market, which is the most popular segment for server sales.
Broadpoint projects Intel will rack up 12.4 million units in 2010, a 16 percent year-over-year improvement, with unit share down 1 percentage point to 88 percent and ASPs unchanged at $519.
"We continue to expect richer server product mix through CY10 [calendar year 2010] driven by Nehalem-EX and newer Westmere (32nm) and Tukwila (next-generation Itanium) processors. As such, we portend INTC will be the preferred choice servicing the high-end 4P and 2P markets," wrote Freedman.
For AMD, Broadpoint is cutting back its year-over-year ASP growth projections from 12 percent to just 5 percent due to a heavy push into mainstream, two-socket servers where Intel is so dominant. It's still growth, and AMD is expected to do well in unit growth.
Broadpoint expects AMD to ship 1.68 million units, up from prior projections of 1.58 million units, for 51 percent year-over-year growth. Unit share will grow to 12 percent, very good news after all the market share loss AMD has suffered in the server market. AMD's dollar share will remain unchanged at 10 percent of the total market.
We note that our AMD unit growth could prove conservative on material in-roads in 2P, as we temper a degree of enthusiasm given our already robust MPU (14.1M) expectation," wrote Freedman.
"The table is set in CY10 for both companies to exhibit material earnings leverage through a pick-up in server demand given: 1) the ongoing enterprise refresh cycle; 2) compelling MPU platforms (significant performance and costs advantages); 3) magnitude of MPU channel refill remains underestimated; and 4) accelerating cloud build-out trends of virtualized data centers (higher-end MPUs with increased attach rates)," concluded Freedman.
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