Semiconductor manufacturer Intel Corp. (INTC) is one of the tech sector's real laggards. Its shares having sunk by 4.4% for the year-to-date through Friday, while rivals Advanced Micro Devices Inc. (AMD) and NVIDIA Corp. (NVDA) have surged 22.8% and 54.5%, respectively, per Nasdaq data. Meanwhile, Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) has raced past Intel as the biggest chip maker by market capitalization, $188.0 billion to $163.3 billion, also per Nasdaq.

Slowing Growth

Intel is still the global leader in semiconductor sales, according to The Wall Street Journal, but sales growth is slow. The consensus forecast of $60.18 billion in revenues for full year 2017 is only 1.2% above 2016 actual results, per the Financial Times. For 2018, annual revenues are expected to grow by 2.5%. Cumulatively from 2013 to 2016, Intel's revenues increased 12.8%, also per the FT.

Intel's lead in sales revenue may be short-lived. Extrapolating from first quarter results, Samsung Electronics Co. Ltd. (SSNLF) is on pace to record full-year 2017 semiconductor sales of 62.64 trillion South Korean won, or about $55 billion at the current spot exchange rate. Samsung's annual chip sales revenue increased by 36.6% cumulatively from 2013 to 2017, and is on pace for at least another 22.4% increase from 2016 to 2017, per Samsung. (For more, see also: The World's Most Profitable Big Tech Isn't Apple.)

Challenged in Core Markets

Intel has been hurt by declining PC sales, which have fallen for five straight years through 2016, according to technology market research firm Gartner Inc. (ITas reported by USA Today. Meanwhile, Advanced Micro Devices, the Journal reports, has rolled out new chips this year that are gaining favor with the manufacturers of high-end PCs and servers. Also, graphics-oriented chips from NVIDIA, already preferred by avid computer gamers, are better fits than Intel's offerings for use in artificial intelligence (AI), the Journal adds.

For data center applications, high speed ARM processors are displacing Intel's products, the Journal says. ARM chips are cheaper and run at lower power levels than alternatives from Intel, according to technology columnist Tim Bajarin writing in Techland from Time Inc. Bajarin also noted that ARM chips are widely preferred to Intel's alternatives for use in mobile devices such as cell phones, smartphones and tablets. Given that smartphones and tablets are displacing PC sales among young consumers, this magnifies Intel's problems. If that were not enough, Bajarin indicated that Microsoft Corp. (MSFT) has optimized some recent versions of its Windows operating system to run on ARM processors rather than Intel's chips. (For more, see also: Intel, NVIDIA Face Chipmaking Threat From Google.)

As a result, holding onto market share in data center applications is becoming ever more critical for Intel, the Journal notes. Intel has countered AMD's new Epyc line of server chips with its own Xeon line. While the Xeon was formally rolled out this week, Intel indicates that it already has sold 500,000 units under an "early ship" program, according to the Journal.

Intel vs. AMD and ARM

In terms of relative size, Intel towers over AMD, with nearly 14 times the sales revenue for full year 2016, per Investopedia data. Moreover, the Journal notes, Intel's R&D budget alone is about three times the size of AMD's total revenues. However, AMD is growing faster in key areas. AMD's revenue from graphics and computing applications is projected to increase by 34% this year, the Journal says, while Intel's much larger revenues from data center applications have slowed to 7% expected growth, the lowest in the company's history. Meanwhile, the Journal adds, AMD has negligible sales from applications in servers, so any market share that it gains will be at Intel's expense.

As its name implies, U.K.-based ARM Holdings Ltd. is a designer and producer of ARM chips. It was acquired in 2016 by SoftBank Group Corp., a Japanese holding company whose other business segments include telecom, Internet services, robotics, and information technology, among others. For the final four months of 2016, after the finalization of the acquisition by Softbank, ARM's sales revenue was 112.9 billion Japanese yen, per Softbank. At the current spot exchange rate, this translates to about $1 billion, or roughly $3 billion annualized. Like AMD, ARM is another small rival to Intel that is nibbling at the edges of the semiconductor giant's market.

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