Google (GOOG) Could Threaten Intel (INTC) by Designing Server Processors

NEW YORK (TheStreet) -- Google (GOOG) is reportedly working to create its own server processor based on ARM (ARMH) technology, which could potentially threaten Intel (INTC).

A source talking to Bloomberg said that by designing its own processors Google can more tightly integrate the hardware and software running on its servers. The source did add that Google may change its plans, however, and that no decision has been made yet.

Google is one of the largest processor server buyers, and is currently Intel's fifth-largest customer. Bloomberg supply chain analysis claims the search company accounts for a total of 4.3% of the chipmakers revenue. If Google does switch its servers to its own ARM-based processors Intel could lose that portion of its revenue.

"We are actively engaged in designing the world's best infrastructure," a Google spokeswoman said. "This includes both hardware design (at all levels) and software design."

ARM-based chips currently dominate the smartphone market with chipmakers such as Qualcomm (QCOM) and Samsung (005930) using the company's technology for its chips. Intel has tried to enter that market, but has found few partners.

TheStreet Ratings team rates Google as a "buy" with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate GOOGLE INC (GOOG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, growth in earnings per share and compelling growth in net income. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GOOG's revenue growth has slightly outpaced the industry average of 9.1%. Since the same quarter one year prior, revenues rose by 11.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although GOOG's debt-to-equity ratio of 0.06 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.50, which clearly demonstrates the ability to cover short-term cash needs.
  • Powered by its strong earnings growth of 34.41% and other important driving factors, this stock has surged by 53.72% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GOOG should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • GOOGLE INC has improved earnings per share by 34.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GOOGLE INC increased its bottom line by earning $32.47 versus $29.74 in the prior year. This year, the market expects an improvement in earnings ($44.08 versus $32.47).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Internet Software & Services industry average. The net income increased by 36.5% when compared to the same quarter one year prior, rising from $2,176.00 million to $2,970.00 million.
  • You can view the full analysis from the report here: GOOG Ratings Report


TheStreet Ratings team rates Intel as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate INTEL CORP (INTC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.9%. Since the same quarter one year prior, revenues slightly increased by 0.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Although INTC's debt-to-equity ratio of 0.24 is very low, it is currently higher than that of the industry average. To add to this, INTC has a quick ratio of 1.65, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has increased to $5,731.00 million or 11.34% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -12.25%.
  • The gross profit margin for INTEL CORP is currently very high, coming in at 76.84%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 21.87% trails the industry average.
  • You can view the full analysis from the report here: INTC Ratings Report

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