Broadcom's Networking Dominance Fuels Intel's Decision to Sell Off NEX Business

Intel is considering selling its Networking and Edge product lines due to Broadcom's dominance in the networking chip market. The NEX segment generated $5.8 billion in revenue in 2024 and has a relatively solid operating margin of around 16%. Intel wants to refocus on its PC and data center CPU business, where it holds a 68% and 55% market share, respectively. Broadcom's strong lineup of networking chips, including Tomahawk and Trident, has made it a thorn in Intel's side.

In a significant move, Intel (NASDAQ: INTC) is considering the sale of its Networking and Edge product lines, a segment that generated $5.8 billion in revenue in 2024 [1]. The decision comes amidst growing competition from Broadcom (NASDAQ: AVGO), which has established a strong foothold in the networking chip market. This strategic shift aims to refocus Intel's efforts on its core business: PC and data center CPUs, where it maintains a substantial market share.

Intel's Networking and Edge products, categorized under the NEX segment, have shown robust growth, with a 20% increase in Q4 2024 and an operating margin of around 16% [1]. However, the company's market share in CPUs has declined from 80% in 2015 to 60% in 2024, with Advanced Micro Devices (NASDAQ: AMD) benefiting significantly from this shift [1]. Intel's decision to divest its NEX segment is a strategic move to concentrate resources on its core CPU business.

Broadcom's dominance in the networking chip market is a key factor driving Intel's decision. Broadcom's Tomahawk and Jericho chips are strong competitors to Intel's Ethernet switching chips, which the company has stopped investing in since 2022 [1]. Broadcom's networking chips account for 30% of its AI revenue, generating around $3.7 billion in 2024 [1]. This competitive pressure has led Intel to reassess its strategy in the networking market.

Mizuho has increased its price target for Broadcom to $300, citing the company's strong performance in AI and networking technologies [2]. Analysts forecast significant growth for Broadcom, driven by its custom silicon for AI and other verticals. The average target price for Broadcom is $236.46, with a high estimate of $300.00 [2]. The consensus recommendation is "Outperform," reflecting analysts' confidence in the company's future prospects.

Intel's focus on CPUs aligns with its market leadership in this area. The company holds a 68% market share in PC CPUs and a 55% market share in data center CPUs [1]. By divesting its Networking and Edge businesses, Intel aims to streamline its operations and enhance its competitive position in its core markets.

In conclusion, Intel's strategic decision to sell its Networking and Edge businesses reflects a broader industry trend of companies refocusing on their core competencies. Broadcom's dominance in networking chips underscores the competitive landscape in the semiconductor industry. As Intel shifts its focus to CPUs, investors will closely monitor the company's ability to maintain its market leadership and adapt to evolving technological trends.

References:
[1] https://www.theglobeandmail.com/investing/markets/stocks/INTC/pressreleases/32649955/intels-loss-is-broadcoms-gain-as-avgo-dominates-networking/
[2] https://www.gurufocus.com/news/2892004/broadcom-avgo-mizuho-ups-price-target-with-ai-growth-in-focus-avgo-stock-news