Once the crown jewel of Intel's (INTC -0.69%) product segments, its data center business has fallen on hard times. Server CPUs (central processing units) used to be wildly lucrative for Intel, which not too long ago had a near-monopoly on them as rival AMD sputtered. While Intel remains the market share leader in that niche, years of delays in rolling out new manufacturing process nodes and other missteps, along with the debuts of solid products from AMD, have weakened its position.

In 2019, Intel's data center segment produced $23.5 billion in revenue and $10.3 billion in operating income. In 2023, its data center revenue was down to $15.5 billion and the segment produced a $530 million operating loss. A few factors drove that drop in revenue and massive swing on the bottom line.

First, AMD gained market share by putting out exceptionally good products. The company's Genoa family of EPYC server CPUs, which it launched in late 2022, trounced Intel on core counts, performance, and efficiency. AMD's unit share of the x86 server CPU market stood at 23.6% in the first quarter of 2024, according to Mercury Research, up from just 2.9% five years earlier.

Second, AMD's superior products erased much of Intel's pricing power. AMD's revenue share of the x86 server CPU market was 33% in the first quarter of 2024, which suggests that Intel has had to trim prices to maintain its unit market share. Intel publishes list prices for its server CPUs, but those don't reflect the actual prices large customers end up paying after negotiations.

Granite Rapids could help on two fronts

Intel recently launched its latest lineup of powerful server CPUs, codenamed Granite Rapids. Early reviews indicate that it's a potent product family that entirely closes Intel's previous performance gap with AMD. The chipmaker moved to its new Intel 3 manufacturing process, ramped its maximum core count to 128, redesigned the architecture, and delivered solid performance and efficiency gains. For comparison, last year's Emerald Rapids chips topped out at 64 cores.

Granite Rapids, along with the efficiency-focused Sierra Forest family, should help Intel slow, halt, or even reverse AMD's market share gains. Another benefit of having products that are competitive for the first time in years is that Intel will likely be able to charge higher prices. The list price for the flagship Granite Rapids model is the highest it has charged in years for one of its server CPUs.

The top-of-the-line Xeon 6980P is priced at $17,800. That's higher than the $11,805 price tag on AMD's EPYC Genoa 9654, which features 96 cores. It's also much higher than the published pricing for Intel's last-gen Emerald Rapids chips. The flagship Emerald Rapids CPU, which came with 64 cores, was priced at $11,600 at launch.

Even if Intel doesn't manage to win back much market share with this generation of CPUs, it should be able to generate more revenue per chip with Granite Rapids compared to Emerald Rapids. Instead of trying to sell customers CPUs that are largely inferior to the competition, Intel now has a strong server CPU lineup that can go head-to-head with AMD.

Assuming manufacturing Granite Rapids chips is cost effective, it's likely that profitability in Intel's data center segment will rebound. Considering its big performance improvements, Granite Rapids is shaping up to be a big seller for Intel.

Since Granite Rapids uses the new Intel 3 manufacturing process, it remains to be seen how much volume Intel will be able to push into the market. Additional Granite Rapids models with fewer cores are coming in 2025, and Intel may have split the launch to ensure that it could meet demand for its higher-end models.

As Granite Rapids launched relatively late in the year, 2024 will be a year to forget for Intel's data center segment. However, the situation should look significantly better in 2025 and beyond.