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Google Now Endorsing Qualcomm? What It Means For Intel Shareholders

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Google Inc (NASDAQ: GOOG) may deal a blow to Intel Corporation (NASDAQ: INTC) after a Bloomberg report said that the search giant is planning to publicly give its support to early versions of QUALCOMM, Inc. (NASDAQ: QCOM)'s chips at an investor event next week. The report said that the two companies already cooperated on design work and Google will commit to using the processors if they meet performance goals.

The move is significant as Google is one of the largest buyers of server chips and a support to Qualcomm could be a threat to Intel's dominance in the server market. Bloomberg, citing IDC data, said Google buys as many as 300,000 server chips each quarter from Intel, thereby making it one of the company's biggest customers.

Santa Clara, California-based Intel caters to 99 percent of the demand for server chips that powers corporate networks and data centers. A potential Google-Qualcomm partnership may not immediately affect Intel, but it may dent its bottom line over time if other companies also march towards Qualcomm in a bid to cut surging data center costs.

Intel Relying On Server Chips

Intel, which gets more than 50 percent of its operating profit from server chips, has been relying on the segment as its core PC business is on a decline. According to Gartner, worldwide PC shipments fell 8.3 percent to 75.7 million units in the fourth quarter of 2015. For 2015, PC shipments totaled 288.7 million units, an 8 percent decline from 2014.

Gartner sees a 1.3 percent drop in 2016 PC shipments, with the potential for a soft recovery in late 2016. Mikako Kitagawa, principal analyst at Gartner, said the PC market is still in the middle of structural change which will reduce the PC installed base in the next few years.

What's Next?

Intel should not take this potential development lightly as Qualcomm is the biggest maker of mobile chips and it could deploy the same strategy here too. Since Google makes its own server software, the potential transition from Intel to Qualcomm would be easier for the company.

For Qualcomm, the potential Google deal would be a big win to ramp its server campaign. Last month, Qualcomm announced last month a $280 million joint venture in China to develop server chipset technology. Qualcomm, based in San Diego, California, had announced last October that it began shipping evaluation systems with preproduction server SoCs to tier-one data centers.

"We see this development as positive for Qualcomm," J.P.Morgan analyst Rod Hall said in a note to clients.

Shares of Intel were up 0.3 percent at $29.46, while shares of Google-parent Alphabet were down 1.72 percent at $714.43. Qualcomm stock is up about 1 percent at about $45.15.

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