Will the Growing Popularity of Microservers Disrupt Intel's High-End Server Chips?

There has been a lot of talk lately in tech circles about the possible applications for those cheap, weedy, and diminutive things called microservers, and how they could disrupt traditional high-end servers. According to a recent Tech Pro Research survey, 69% of businesses already consider them a significant innovation in their data centers. Avanced Micro Devices (NYSE: AMD  ) has been touting its leadership in microservers, while the market leader in enterprise server chips, Intel (NASDAQ: INTC  ) , seems to be lagging behind a bit.

Source: Tech Pro Research

How big is the market for microservers?
The current size of the market for microservers is still a matter of conjecture, with widely varying estimates given by market leaders AMD and Intel. AMD estimates that the current market is about 4%-6% of the overall server market, with the potential to grow to 10%-20%. Intel, on the other hand, says that the overall market for its microserver chips Atom SoCs, Avoton, and Xeon E3, as well as everything that falls in the category of single-socket shared infrastructure, is just 1% of the total server-chip market, calculated on a volume basis.

Intel's Xeon Ivy Town Chip

Source: Intel

While there is no clear consensus on the actual size of the microserver market, the possible applications are clear-cut. Intel's Avoton chips and Xeon E3s are particularly suited for low-power applications such as cold storage. Cold storage is a term commonly used by cloud service providers to denote storage of data that is not accessed very often, such as photos.

As more companies migrate their core ERP functions to the cloud, the need for traditional vertical stack server setup is increasingly being replaced by software-defined networking, or SDN, and network function virtualization. Many companies now view microservers as a more attractive option due to their low power demands, low cost, and ability to scale well, which makes them ideal for serving static elements on high-traffic networks. Microservers are used to handle scaling lightweight tasks, thus freeing up larger servers to do the heavy lifting.

Several high-profile companies have deployed microservers in their data centers. Verizon (NYSE: VZ  ) uses microservers in its Verizon Cloud service. The servers are housed in Terremark data center, which the company bought for $1.4 billion in 2011.

Verizon's cloud service is aimed at government agencies, medium-sized businesses, and large corporations. The service is designed to connect to AWS and CloudStack. The company touts the value proposition of its cloud as increased efficiency, increased security, and enticing service-level agreements.

RedHat (NYSE: RHT  ) has built its OpenShift cloud computing PaaS using microservers. The service allows users to develop their own applications, then host and scale them in the cloud. App hosting works quite well with microservers, primarily because of their low power requirements, and the fact that an app-hosting environment typically involves high volumes of similar tasks.

Rubicon, a company that helps automate buying and selling of online ads, has also implemented microservers in its Rubicon Project. Rubicon uses the microservers to power its Revv platform for quick ad sales. The company says it opted for microservers in order to enhance the speed of international deals.

Revv microservers power billions of online transactions every month to help maintain high volumes of repeated transactions, with the ability to scale quickly whenever the workload increases.

Why microservers are not likely to replace traditional servers
Microservers are not likely to become as popular as their much larger counterparts due to several key limitations. According to the Tech Pro Research survey, only 5% of organizations are currently deploying microservers in production environments, with 47% having no plans to evaluate their viability. About 33% of organizations are evaluating microservers, but have not made up their minds to purchase them.

Source: Tech Pro Research

For organizations with no plans to evaluate microservers, the majority simply prefer traditional servers, with a significant percentage pointing at I/O, or input/output, limitations of microservers as the biggest reason why they have no plans to deploy them. Other issues, such as supportability, trustworthiness, and security, all cropped up during the survey.

Source: Tech Pro Research

Jason Waxman, Intel's head of the company's microserver division, pointed out during an interview last year that the desire for reliability and high performance are usually the biggest concerns for large data centers, while shared memory is usually a secondary requirement. Intel has E7 product lines for large, mission-critical databases with features such as error correcting circuitry.

Intel usually adopts a policy of being the leader in whatever kind of chips its customers want, and doesn't take chances, even when the potential market size remains unknown. The company's second-generation 64-bit Atom SoC is widely considered best-in-class, and will give the company a leg up on its competition.

Foolish takeaway
Although the potential size of the microserver market remains unclear, it appears as if the companies that are deploying microservers are doing so for specific needs, and not necessarily to replace their traditional servers. Intel, however, is not taking any chances and is trying hard to keep ahead of the curve, which will allow it to dominate the microserver market, no matter the direction it takes.

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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 May 13, 2014, at 10:34 PM, ethos wrote:

    So I guess the answer to your ridiculous title is: NO.

  • Report this Comment On May 13, 2014, at 11:10 PM, rav55 wrote:

    Corporate IT is very conservative with the exception of Linux based corporate IT. Linux users have already demonstarted a willingness to break with Microsoft so Intel should not be far behind.

    However EVERYBODY has their eye on the bottom line.

    AMD's excursion into this space will benefit that group that is NOT married to Windows but rather Linux.

    Linux users are not in the demographic that Intel is trumping as it's own but rather they are likely to think out of the box and even more likely to adopt with a passion AMD microservers.

    Afterall they already hate Wintel.

    So expect a very steady growth with microservers, but not enough to really damage XEON. Unless the energy consumption is truly disruptive.

    Also AMD's new Sky Bridge project seems ideal for SeaMicro servers. A single mobo for either ARM or x86 depending on the customer specification! That IS disruptive.

    That alone will likely save 50% on the motherboard cost alone. The initial capitalisation for a server farm would be hugely reduced. Intel might be forced to give MASSIVE rebates for XEON as well as their mobile and tablet silicon. I see more losses for Intel!!! LOL

  • Report this Comment On May 14, 2014, at 9:06 AM, DolceTran wrote:

    Yes ethos, the answer is NO.

  • Report this Comment On May 14, 2014, at 12:30 PM, H2323 wrote:

    Power, ARM, and AMD x86 will disrupt the entire Intel monopoly on the server space. OEM's have requested it. They are being nailed by Intel with no choice, the space needs major change and it has arrived.

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