Samsung Setting Up to Challenge Intel in Servers

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It's no secret that Samsung (NASDAQOTH: SSNLF  ) is setting up to go head-to-head with Intel (NASDAQ: INTC  ) in the micro-server segment. A careful examination of LinkedIn profiles has shown that a number of high-profile technical personnel with server chip experience -- including the lead architect for Intel's latest Avoton low-power system-on-chip products -- have been snapped up by Samsung. Further, Samsung has begun openly advertising positions for the development of ARM-based server chips.

Samsung is throwing its hat in the ring, but it's a crowded market
The micro-server market, one that ARM (NASDAQ: ARMH  ) vendors have been talking about for quite a while now, is still relatively new and not particularly large. While some believe that, over the next several years, it could be a market worth $2 billion-$4 billion and a great opportunity for ARM (and its partners) to break into the server market, this is much easier said than done.

First off, there are a lot of players potentially looking at this market, including (but probably not limited to):

  • Intel
  • AMD
  • Qualcomm
  • Cavium Networks
  • Applied Micro
  • Marvell

Assuming that the industry analysts are correct and the addressable market turns out to be worth $2.5 billion by 2016, this could be a large opportunity for some of the smaller players on this list, and perhaps an interesting incremental opportunity for the larger players (although by no means a game-changer). For Samsung Semiconductor -- the second-largest semiconductor company in the world by revenue, next to Intel -- this would be a small incremental opportunity.

Can Samsung even compete with Intel?
Samsung is gigantic, but it's important to understand that Samsung's core competency isn't designing processors. The company runs a semiconductor logic foundry, but much of the heavy lifting on the actual semiconductor technology side is done by IBM and the other members of the Common Platform Alliance. Samsung's role here is really its capital expenditure muscle, on top of some tweaks to the Common Platform's process.

Additionally, while Samsung Electronics' R&D budget sits at a cool $12.41 billion (Intel's R&D stands at approximately $10.41 billion), it is spread out across many different fields, including:

  • Smartphones
  • Tablets
  • Mobile system-on-chip products
  • TVs
  • Cameras/camcorders
  • Mobile system-on-chip products
  • Micro-server chips

While it is true that there is probably some solid R&D leverage here, it's going to be an uphill battle competing in this space against Intel and the well-established x86-64 instruction set. That's not to say that it will be impossible to gain share -- Samsung will probably fight aggressively with whatever product it develops -- but Intel will make things exceptionally difficult, particularly with its structural advantages in manufacturing, software, and customer relationships.

Foolish bottom line
While there is a lot of hype around ARM-based micro-servers, and while Samsung is a giant, it is competing against an incumbent that is feverishly developing products in a bid to defend its share. Samsung can certainly afford to try its hand at this market, and it could eventually find some degree of success. But, fair warning: IBM and Oracle couldn't stand up against Intel in servers, so as powerful as Samsung is, the odds are really stacked against it here.

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Read/Post Comments (6) | Recommend This Article (0)

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 January 02, 2014, at 5:43 AM, ashleyjames389 wrote:

    Intel is a great company, not only makes amazing products but also works for the environment

  • Report this Comment On January 02, 2014, at 10:26 AM, fearandgreed2005 wrote:

    I liked the phrase that their "core" competency isn't designing processors. Keep those puns coming.

  • Report this Comment On January 02, 2014, at 10:55 AM, KenLuskin wrote:

    AMD management showed foresight by purchasing SeaMicro in 2012, because they are the leader in what is known as DENSE or MICRO SERVERS.

    The micro server approach is completely different from the server approach that has allowed Intel to take a 95% market share.

    NOBODY has more server IP than AMD as it relates to MICRO SERVERS.

    AMD invented the server chip architecture AMD 64 that is now used and LICENSED by Intel.

    Cloud providers will be purchasing at least 50% of the servers within a few years, and AMD will dominate in providing them with Micro Servers!

    It is HILARIOUS that the author FAILS to acknowledge that Intel was forced to LICENSE their server chip architecture from AMD!!!

    What happens when this license expires later this year?

  • Report this Comment On January 02, 2014, at 11:01 AM, KenLuskin wrote:

    EVERYONE interested in Micro Servers, and they need to be, should read :


    >>>"Feldman’s answer to this portion of the competitive landscape is again SeaMicro’s – and by inheritance, AMD’s – experience building and selling servers. “One of the ironies here is that in the ARM space, there are a ton of people who have made ARM SoCs, Qualcomm and Samsung being the best, without question,” Feldman says. “Those guys are monsters at making ARM SoCs.” These are companies that manufacture ARM processors inside the bulk of the world’s smartphones. Apple designs the ARM processors inside iPhones but uses Samsung as manufacturer. None of them, however, have made an ARM server before, Feldman says.

    “While others have more experience with ARM SoCs, none of them have an iota – I mean single. Shipped. Part. Ever – of the 30 IP blocks needed to build a server.

    That’s the differentiation that we bring as AMD,” he says. You do not get that kind of experience by building it right once, he adds. It’s also not a one-chip race. "<<<

    Intel's Server chip architecture is LICENSED from AMD!!!

    Once you understand that FACT, then you realize who has the best IP in the server chip space!!!

    The license to Intel EXPIRES later this year...

    This license could be worth $ tens of billions....

    and the patents do NOT expire for another 5 years or more!

  • Report this Comment On January 02, 2014, at 11:13 AM, KenLuskin wrote:

    Ashraf, Your new idea of comparing total R&D budgets does NOT confer victory to the company with the largest number.

    Go Back a dozen years ago and compare:

    Apple R & D budget to Intel, IBM, and MSFT.

    So, which company was the HUGE winner over the last dozen years?

    If you continue your simplistic analysis you will end up with egg all over your face, and the laughing stock of seeking alpha and the blog for fools.

  • Report this Comment On January 02, 2014, at 12:45 PM, KenLuskin wrote:

    It’s not a mode of just bringing the server piece of silicon to the marketplace and saying okay, we are going to win. AMD has over 10 to 15 years of server experience.

    We have sold over multi-millions of server products. What does that require? It’s not just hardware. You got to have the software capability. You have to bring the platforms to market. You have to have the compilers. You have to have the benchmarks, you have to have [AFE] [ph] support. All of that takes years of experience and it’s something that AMD has. All of these new players and I respect my competition greatly. They are going to have silicon to the marketplace, no doubt. But like in any new market that opens up, I think as time moves along the bag will get bigger and we believe that we can actually win and we can be the leader in Arm 64 bit products.

    I can tell you that our ARM 64-bit for the server market is right on track. We will be sampling in Q1. And then ultimately why us will win? Everyone who is actually going to bring an ARM 64-bit product to the marketplace is going to require some form of fabric, something that links all of these low power cores together.

    We acquired SeaMicro some 18 months ago for $300 million because of that fabric. If you look at the fabric that we have with SeaMicro we already have over 80 customers active today.

    But the biggest one and actually they were very public about it was Verizon. So we are in seven of Verizon’s datacenters using our SeaMicro product today and that’s why we believe we can win in this space.

    2014 is a NEW year, yet Ashraf is still stuck in a pumping of Intel mode.. and a soft bashing of AMD...

    FOOLISH? .... VERY!

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Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

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