Intel Will Do as Google Commands

There's been a lot of hype these days about big players in consumer tech developing their own custom processors for just about everything -- and Intel (NASDAQ: INTC  ) is usually seen as the company set to suffer. There's been a lot of very good work in the low-power CPU core space from the likes of Apple (NASDAQ: AAPL  ) , Qualcomm, and ARM (NASDAQ: ARMH  ) . But investors are too quick to extrapolate this to server processors that offer extremely high performance levels and features that small mobile chips could only dream of. While Google (NASDAQ: GOOGL  ) is great, there's very little chance that it's going to be outgunning an Intel Xeon anytime soon.

Intel's server chips are beastly
Think about the following for a moment. Both IBM (NYSE: IBM  ) and Oracle (NYSE: ORCL  ) , via its acquisition of Sun Microsystems, have decades of high-performance microprocessor design experience. In fact, in much the same vein as Apple designing its own chip for the iPhone/iPad, Oracle and IBM have routinely designed their own chips for many of their high-end servers and storage systems. Even with this capability, and even with complete control of their operating systems and software stacks, both of these players still ship plenty of systems with Intel x86 hardware, while hardware with their own chips continue to become even more niche by the day.

Why do investors suppose that is? Well, it's a combination of things. First of all, on a performance-per-watt basis, it's very tough to compete with Intel's product stack at all different power levels -- and Intel is extending this range every year. The company very deftly allocates plenty of research and development money to its server chips and, coupled with its multi-year lead in transistor technology, puts out very high-performance and power-efficient chips for just about any data center computing need. It's not as though Intel has a monopoly here -- it's just that its products have eclipsed the competition's, making it look like a monopoly situation.

Intel will do as Google commands
Intel is very protective of its data center business, which includes server CPUs and also other things like Ethernet cards, switches, and so on. At numerous events, the company has been quite explicit that it is willing to bend over backwards for important customers. Not only does Intel give these companies volume discounts, but it has signaled that it will work with these major players to develop custom silicon. Today, Intel does this to an extent by varying the speeds and power levels of the processors. But the company will soon be doing "semi-custom" designs that marry Intel's battle-hardened CPU blocks with custom IP blocks from customers -- or custom IP blocks built in collaboration with said customer.

So, it's tough to imagine that Intel wouldn't build a chip, or even a family of chips, custom-tailored to Google's needs. That's not to say that the company's current lineup of server processors wasn't built with Google's and other major companies' input. Intel always gathers input from its hardware customers and software partners on what features they would like to see in their chips. But there is certainly room for further customization beyond the traditional lineup.

Foolish bottom line
Yes, Intel has its weaknesses, and letting mobile get by early on was a major flop, but the data center group is an area of unequivocal strength. The company has been gaining share and growing its core data center businesses while expanding nicely into storage, networking, and communications infrastructure. To think that Intel, which is keenly aware of any and all impending competitive threats, will not treat its major customers like royalty to keep their business is probably not an assumption worth betting real money on. Whether you think Intel will succeed, however, is another matter entirely.

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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 17, 2013, at 4:17 PM, fearandgreed2005 wrote:

    I always enjoy reading your stuff and this one is right on the money. It would just be plain silly for Google not to take advantage of all Intel has to offer its server customers including world class process technology and the willingness to do some custom work.

  • Report this Comment On December 17, 2013, at 5:21 PM, opto50 wrote:

    As a number of readers have brought up the fact that AMD's X86-64 (AMD64) design has swept the world in everything from game consoles to PCs to servers and supercomputers, the question of license of the design to Intel has been brought up.

    The value of AMD's 64bit license grows bigger, while Intel's 32bit X86 value deflates as last century technology, so during the next year it will be interesting if AMD will either cease licensing AMD64 (and offer it to Qualcomm/Samsung) or have Intel pay several billions of dollars more in compensation for their valuable patented technology.

  • Report this Comment On December 17, 2013, at 6:17 PM, TMFAeassa wrote:

    opto50,

    I do not believe that an instruction set license is worth "billions" of dollars. If that were the case, then ARM Holdings would be generating trillions per year in license revenue! :-)

    -AE

  • Report this Comment On December 17, 2013, at 8:25 PM, opto50 wrote:

    When the license expires in approx 365 days, at least everyone will find out how important and how much value that AMD64 along with their other IP holds for Intel.

    Just for background, there is a legal background at Harvard Law School IP website. It may be amusing to find in the future designs, that "Intel Inside" logo has to be amended to "AMD64 Inside" on every X86-64 device in the future.

    http://jolt.law.harvard.edu/digest/patent/intel-and-the-x86-...

  • Report this Comment On December 18, 2013, at 11:31 AM, drborst wrote:

    Ashraf, Of course Intel will do as Google (or FB or Lenovo or Dell or HP, or even Apple) commands. That's like the old saying, "I believe in the golden rule, he who has the gold makes the rule.

    To me the question is: how different are Semi-custom (the subject of this article) and Fully-custom (the much talked about Intel Foundry business)?

    To me, Intel in the foundry business seems at least partly about 'stealing' revenue from TSMC and Samsung... some of which could be used to catch up on the process side, or is that silly thinking?

    DRB

  • Report this Comment On December 18, 2013, at 4:00 PM, Treadstone7l wrote:

    opto50,

    While AMD licenses the 64 bit extensions to Intel, Intel licenses the 32 bit ones upon which the 64 bit extensions were built to AMD.

    It's a classic case of M.A.D.. If one of them pulls the license for one, the other will pull the license for the other. Nothing will change a year from now.

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