Intel's Micro-Server Efforts Get No Respect

Despite solid execution, Intel's efforts in the emerging area of micro-servers are met with no love.

Jun 15, 2014 at 9:00AM

Over the past several years, there has been growing interest in developing ARM Holdings (NASDAQ:ARMH)-based server processors from a variety of vendors including Advanced Micro Devices (NASDAQ:AMD), Applied Micro (NASDAQ:AMCC), and others in the hopes of grabbing a piece of Intel's (NASDAQ:INTC) very lucrative data-center pie.

So far, however, the ARM-based vendors have yet to deliver, with many of these players still a way out from getting competitive products built on modern semiconductor manufacturing technology to market. On the other hand, Intel has executed well, particularly with its 22-nanometer FinFET lineup of products that has been in the market since late 2013. 

Why doesn't Intel get any respect in micro-servers?
The simple fact is that many investors believe that Intel has one or more of the following fundamental disadvantages relative to the various ARM startups:

  • Claim: Intel is at an inherent power disadvantage thanks to X86. While this is an easy marketing point to use on investors, the reality is that these days the overhead associated with some of the key "talking points" that ARM (and other RISC vendors) like to bring up is negligible. Some will cite recent comments from chip guru Jim Keller that ARM is inherently more efficient, but that's actually quite perplexing given that it was AMD's own Fred Webe, who helped defined the X86-64 extensions to Intel's X86, that pointed out that the overhead was negligible years ago, when transistor budgets were much smaller -- meaning that any overhead is even less important today than it was all those years ago.
  • Claim: Intel is at a cost and pricing disadvantage. According to some, ARM chips will somehow be "cheaper" than Intel chips. The flaw in that reasoning is that, given that the unit volumes in this market are relatively small compared with, say, mobile chips, the gross margins per unit need to be quite high to offset the substantial (and growing) R&D required to develop competitive products. Further, given that higher one-time costs for significant power and energy savings over the lifetime of the hardware is a trade-off most data center operators will make all day, it's unlikely that a company can win simply by engaging in a price war here.
  • Claim: There are lots of competitors, so Intel's share must go down. While it seems that a lot of companies are taking out ARM licenses in a bid to try to cash in on this trend, look at what is happening in mobile systems on a chip -- the vendors are dropping one by one, the most recent of which was Broadcom. R&D barriers are tough to overcome even if a small startup can "theoretically" be a player in a market with a large total addressable market. The same pattern is likely to repeat in data centers, and Intel's scale, manufacturing lead, and design prowess and IP leverage will serve it well here.

Intel is the only one shipping
Intel has already rolled out its highly integrated 22-nanometer FinFET parts known as Avoton and Rangley for micro-servers and communications, respectively. Applied Micro is still trying to get its first-generation 40-nanometer X-Gene to market, and AMD is set to launch its first 28-nanometer products here in Q4 2014. 

Intel's competitive positioning is quite favorable, and what's even more interesting is that Intel has had these parts in the market since Q4 2013. AMD's upcoming "Seattle" product based on ARM's Cortex A57 and built on a 28-nanometer process should be more competitive than X-Gene, but on a performance/power perspective for general purpose computing, it is unlikely to do all that well relative to the Intel products.

To AMD's credit, it does integrate more accelerators and networking capability than today's Avoton does, but recent details about Intel's upcoming Broadwell-DE, which is a highly integrated system on a chip based on Intel's "big" cores and built on its 14-nanometer FinFET process, suggest that Intel will neutralize AMD's edge here while offering more efficient computing performance in roughly the same timeframe of late 2014 to early 2015. 

Foolish bottom line
Intel's position of leadership today in the data center is very hard won and is the product of immense R&D leverage, world-class manufacturing, and economies of scale that few could hope to match. The hype around ARM servers is likely to turn out to be just that, with real-world market share gains against Intel mirroring ARM's share gains against Intel in Windows PCs as a result of the launch of Windows RT (i.e., negligible), even though expected that opening up Windows to ARM would drive significant share loss for Intel. 

That said, it'll be important to watch for further developments in this space. While I do believe this thesis is sound, surprises and unexpected twists and turns do happen. ARM servers are unlikely to gain the share that some think they will, but as always, only time will tell. 

Leaked: Apple's next smart device (warning -- it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Ashraf Eassa owns shares of ARM Holdings and Intel. The Motley Fool recommends and owns shares of Apple and Intel. 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