Why Google Won't Be Ditching Intel

Chip giant Intel (NASDAQ: INTC  ) currently has a lock on the server chip market, a bright spot for the company, with a market share in excess of 90%. Demand for server chips is strong, with companies like Google (NASDAQ: GOOGL  ) needing an increasing number of servers to power its myriad of web services, and Intel expects double-digit growth rates for its server business going forward.

A recent report from Bloomberg, however, suggests that Google may be looking into designing its own server chips based on the ARM architecture. Google accounts for 4.3% of Intel's total revenue, and that could lead other web giants to follow suit in ditching Intel. But Bloomberg's arguments are weak, and none of the evidence presented seems to point to its conclusion.

Google is designing something, all right
Bloomberg cites "a person with knowledge of the matter," along with a single job opening for a digital design engineer, as evidence of Google's plan to build server chips. The responsibilities of the digital design engineer are:

Digital design of key components in server, networking and storage systems that power Google's hyper scale data centers.

It's clear that Google is looking to design components which will go into its servers, but there's no indication that the actual server chip is the target. The job requires experience with ASIC, or application-specific integrated circuit design, but servers and network systems contain all sorts of ASICs that do all sorts of things. Network switches from big vendors like Cisco, for example, contain custom ASICs, and with Google increasingly designing its own networks and bypassing Cisco, the job opening could be related to networking. Or just about anything, for that matter.

So Google is designing something, but we have no evidence that it's a server chip.

Some things make sense, some things don't
Google and other web giants have been reducing the cost to build out their massive data centers by cutting out middle men such as server and networking vendors. HP and Dell have been feeling the squeeze as these big companies have started to design their own servers and farm out manufacturing to Asia. Generic networking hardware has been putting pressure on Cisco's proprietary switching and routing business.

It makes sense for Google to design its own servers. Servers from HP and Dell are essentially just server components thrown into a box and sold at a premium, so designing custom servers would have a high return on investment for Google. It allows the company to pack more power into a smaller space, and cutting out the middle man reduces costs significantly.

Custom networking also makes sense for Google, given the company's massive and unique networking needs. Generic hardware, along with software-defined networking technology, allows the company to avoid being locked into using Cisco's proprietary products. This saves money while allowing Google to design an optimal network for its specific needs.

Server chips, however, are a different story. Unlike servers and networking hardware, designing a server chip that is powerful and efficient enough is not an easy task, even for Google. Intel has decades of experience, and with almost the entire server market to itself, the x86 architecture is the de facto standard. Any server software would have to be rewritten for the ARM architecture if Google used its own chips.

It's not that Google couldn't design an ARM server chip. It's that the chip wouldn't be able to compete with Intel's products. Intel offers both high-performance Xeon server chips as well as high-efficiency Avoton server chips meant for micro-servers, and building an ARM-based alternative that comes close to achieving the same performance would be an extremely long and costly process. It would also require an entire team, not a single digital design engineer, to complete. The return on investment simply isn't there for Google.

The bottom line
Intel dominates the server chip market for a reason, and I severely doubt that Google will be able to create an effective alternative to Intel's products. It's more likely that Google is simply designing ASICs to further its custom server and networking initiatives, and that Intel will continue to power Google's data centers for years to come. The Bloomberg article seems to be jumping to conclusions that the evidence doesn't support.

Looking for a high-growth tech stock you can bank on?
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.


Read/Post Comments (3) | Recommend This Article (3)

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 3:49 PM, jpanspac wrote:

    The rumor was never credible. I'm glad someone is finally pointing that out.

  • Report this Comment On December 17, 2013, at 4:09 PM, fearandgreed2005 wrote:

    If Google designed their own chip it would have to be manufactured somewhere. Since Intel has a substantial lead over everyone else in the world when it comes to process technology the Google chip would have to be made on old technology. This doesn't make any sense at all.

  • Report this Comment On December 17, 2013, at 4:19 PM, opto50 wrote:

    Intel investor can believe anything they want, it's just that everyone has to eventually face reality:

    Now Facebook Is Looking At Dumping Intel For ARM

    http://www.forbes.com/sites/timworstall/2013/12/15/now-faceb...

    "Another smoking gun for Facebook's shift is a job posting on the company's site for an ARM server software engineer.

    "Facebook is seeking an experienced Software Engineer to help us port the world’s best PHP run-time on servers based on ARM processor," the company wrote. "We aim to evaluate further improving the efficiency of our web tier by porting HipHopVM to new server hardware platforms based on power-efficient ARM."

    The social networking giant has also contributed a server design to its Open Compute Project scheme named "Group Hug" that allows for swappable CPUs, enabling it to efficiently flip Intel for ARM."

Add your comment.

DocumentId: 2766858, ~/Articles/ArticleHandler.aspx, 4/23/2014 5:21:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement