Some Companies Are Giving Up on ARM Servers: What it Means for Intel and Advanced Micro Devices

Both Samsung and NVIDIA are dropping plans to enter the ARM server market, which bodes poorly for Advanced Micro Devices, a company betting big on ARM servers as it attempts to win market share back from Intel.

Jul 7, 2014 at 10:00AM

The server chip market is dominated by Intel (NASDAQ:INTC), and its near-monopoly level market share has allowed the company to extract hefty margins from the segment. Intel generated a 46% operating margin from $11.2 million in sales from its data center group in 2013, an even higher margin than PCs, another market where Intel is dominant. With those kinds of margins, it's not surprising that other companies are vying for a piece of the market, and with mobile devices bringing about the rise of chips based on the ARM architecture from ARM Holdings (NASDAQ:ARMH), it was only a matter of time before competition began knocking on the door of Intel's server empire.

While ARM has high hopes for the server market, with the company aiming for a 10% share by 2017, recent news suggests that stealing market share from Intel may not be that simple. NVIDIA and Samsung, both aiming to power servers with their respective ARM-based chips, have now abandoned those efforts. While this may seem like a good thing for companies betting big on ARM-based servers, like Advanced Micro Devices (NASDAQ:AMD), due to less competition, Samsung's and NVIDIA's lack of confidence should act as a warning sign for AMD investors betting on a server renaissance to turn the company around.

Why are NVIDIA and Samsung giving up?
NVIDIA was exploring pushing the upcoming 64-bit version of its mobile Tegra processor, called Project Denver, as a server processor, but the company has changed strategy and will only look to provide GPUs to complement ARM server chips from other companies. This is very similar to NVIDIA's decision to stop trying to be a mainstream mobile processor provider and instead focus on areas where its graphics expertise matter, as an attempt to compete in the server processor would have almost certainly been a disaster.

Samsung had made a major effort to develop ARM-based server chips, hiring people from AMD's server division to lead the charge, but that project is now being scrapped. Samsung is, by far, the largest seller of smartphones, moving over 300 million units in 2013. It designs some of the chips that it uses in-house, so the company has expertise regarding chip design. But, designing chips is an R&D-heavy endeavor, and the company often ends up using chips from other companies for its phones.

Samsung likely realized that the expense of pushing into servers simply wasn't worth the potential rewards, given both Intel's dominance and other companies vying for the same market. If ARM chips win 10% of the server market by 2017, that would only be around $1 billion of revenue split between the major players, based on Intel's current data center revenue. That's nothing compared to the smartphone processor market, and the return on investment is likely far too low, or nonexistent, for Samsung to continue its server push.

AMD investors should be worried
AMD is making a big bet on ARM-based server chips in an effort to reverse its collapsing server market share. AMD had a 15% share of the market in 2007, but this number has since fallen into the low single-digits. The company expects to claim 25% of the market by 2019, but this number isn't as impressive, considering that ARM's market share is unlikely to be very high at that point. The company will still make x86 server chips as well, but its recent record in that area leaves a lot to be desired.

At stake here is revenue in the hundreds of millions of dollars, assuming that ARM makes major inroads against Intel and that AMD rises above the fray of competitors trying to enter the market. Neither of these is guaranteed.

While ARM may manage to win some server market share from Intel, whether any one company can win enough market share to justify the expense of entering the market is a big unanswered question. Samsung has probably given up for exactly this reason, and it's unlikely that ARM server chips will have a positive impact on AMD's profitability.

The bottom line
ARM's dominance in the smartphone market, along with incredible growth over the past few years, has allowed some smartphone chip companies to do very well. But, the server market is very different. Not only does Intel hold a position that could prove to be unassailable, but even if ARM manages to meet its market share goals over the next few years, the market for ARM-based server chips will be small, likely too small for many companies to even justify entering the market at all.

The smartphone processor market was worth about $18 billion in 2013, for the sake of comparison, and even a small slice of that market would be worth more than a big slice of the ARM server market. ARM servers aren't going to be a panacea for AMD, and offering a different architecture won't change the fact that the company hasn't been competitive with Intel for years.

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

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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

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, 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

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