Should IBM's POWER 8 Worry Intel?

IBM's new POWER 8 processor is absolutely beastly. Should this, coupled with IBM's OpenPOWER initiative, worry Intel?

May 11, 2014 at 2:30PM

When it comes to server processors, Intel (NASDAQ:INTC) is by far the most financially successful. While Intel is well known for having the highest-performing microprocessors in the industry, this isn't strictly true. Indeed, if there is one company out there that builds bigger, hotter, and more powerful processors than Intel does for ultra-high end Unix servers, it's IBM (NYSE:IBM) with its POWER line of microprocessors. With IBM's recent launch of its POWER 8 processors, should Intel be worried?

The power of POWER 8
IBM's POWER 8 is truly a technical tour de force:

P

Source: IBM.

The POWER 8 CPU core is extremely wide, clocks quite high, and offers what seems to be unmatched single-threaded performance. In fact, if we look at performance results of a system packing four of the six core variants of the POWER 8 clocked at 3.52 GHz, and compare it ith a system packing four of Intel's most recently launched Xeon E7-4890 v2 (codenamed Ivy Bridge-EX), IBM's solution compares quite favorably on a per-core basis.

The four-socket Xeon E7-4890 (which packs 60 Ivy Bridge CPU cores clocked at 2.8 GHz) scores 138,900 SAPS (higher is better) while the four-socket POWER 8 (which packs 24 CPU cores clocked at 3.52 GHz) scores 115,870 SAPS. The Intel system offers greater performance, but on a per-core basis the IBM is much more powerful. Also, from a more geeky technical perspective, the IBM CPU is much wider, the chip has significantly more cache, and it offers much higher memory bandwidth than the Intel chip.

Great, IBM's POWER 8 is a beast. So what?
While the performance of the IBM POWER 8 is not at all in question (this is a magnificent piece of engineering), this has never actually been a problem for IBM's POWER line of processors. The POWER 7 was a much beefier and powerful processor relative to its Intel Xeon competition, yet Intel has continued to gain share in the overall server processor market. So what are the important questions investors need to ask about POWER 8?

Intel's success has never just been due to performance leadership; a 6-core POWER 8 about matches a 15-core Intel Xeon, and the 12-core variant of the POWER 8 would utterly embarrass it in performance. The problem for IBM is that the equation for data-center dominance isn't simply about performance, but is instead about performance per watt per dollar. While it's too soon to get a read on the performance per watt of the IBM POWER 8 (although it's likely that this kind of performance doesn't come cheaply), the real problem that is likely to plague it is the cost.

IBM doesn't have Intel's scale
The POWER 8 is built on IBM's custom 22-nanometer SOI process (finely tuned for high-performance CPUs) using 15 metal layers and weighing in at a hefty 650-square-millimeter die size. Further, note that the volumes of this processor are likely extremely low and, in case you haven't been following IBM's financial statements, the sales of systems using these processors continue to plummet. On top of that, given that this is quite a large, exotic design, yields may still be difficult (but for what machines based on this chip sell for, IBM can afford it).

Ibm Hardware

IBM's Systems & Technology group continues to bleed out. Source: IBM. 

On the other hand, Intel's Xeon E7 (Ivy Bridge-EX) is a 4.31 billion-transistor machine weighing in at 541 square millimeters built on a quite mature 22-nanometer FinFET process in factories that have to date pumped out hundreds of millions of 22-nanometer FinFET processors. While the volumes on this part are low, and while yields on this chip are almost assuredly trickier than a 1.4 billion-transistor Haswell notebook CPU, they are probably better than the IBM POWER 8's at this stage of the game.

In short, even if the performance per watt is better than or equal to Intel's, Intel is likely to be able to offer its product much more cheaply as a result of the massive design leverage, as well as the manufacturing leverage it gets from its PC chip and other segments of its server business.

Foolish bottom line
A big round of applause for IBM's technical teams in executing one of the most interesting and exotic processors on the planet today. While IBM appears to hope for a better future for POWER by opening up the architecture and designs for third-party licensing via its OpenPOWER initiative, the markets that IBM's niche high-end servers that it builds POWER for are still very difficult and not getting any easier.

The key things to watch for:

  • Licensing uptake with OpenPOWER.
  • IBM POWER server sales as POWER 8 systems ramp.

If neither of these points to renewed signs of life for POWER, then the fate of these technically beautiful POWER processors may be sealed and Intel will have nothing to worry about. If, on the other hand, OpenPOWER gets POWER 8 into more markets, then Intel may indeed have something to worry about. 

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now, for just a fraction of the price of Apple stock. Click here to get the full story in this eye-opening new report.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel and owns shares of Apple, Intel, and IBM. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers