ARM vs Intel: Server Wars Begin

Intel (NASDAQ: INTC  ) has been the long-standing leader in the mainstream computing space. Its unrivalled dominance in the server chip segment -- representing about 20% of its overall revenue -- has provided stability to the chipmaker's overall top line in the past. However, going forward, the introduction of ARM (NASDAQ: ARMH  ) -based 64-bit server chips poses an imminent threat to Intel's established market position in the segment. 

ARM vs. Intel
Investors should note that Intel chips are superior to their ARM-based counterparts when it comes to raw computing power. This is because Intel chips offer certain hardware-defined functions -- like a relatively larger assembly language vocabulary, or the chip's ability to encode BCD numbers -- thereby allowing consumers to use the chip in a flexible manner. 

However, these hardware functions -- absent in ARM-based offerings -- require transistors to operate on. This is why Intel chips, as opposed to ARM-based offerings, have three times as many transistors. These extra transistors deliver a high-performance computing experience, but they also consume power, which is why ARM-based chips are more power-efficient than Intel chips. 

The story so far
Up until now, Intel and Advanced Micro Devices (NYSE: AMD  ) have been the only two server-based chip manufacturers. AMD's Opteron, however, has failed to keep up with Intel's high-performance Xeon chips over the recent years. For this reason, enterprise clients currently have no option but to equip Intel chips in their servers. 

According to market research firm IDC, about 2.3 million server chips were sold in the second quarter of fiscal year 2013. Out of those, 2.2 million chips were based on x86 architecture -- including AMD and Intel offerings. Trefis, providing more insight, estimates that Intel enjoys over a 90% share in the server chip market. 

To meet the enormous enterprise demand for flexible and power-efficient chip offerings, several chip manufacturers -- including AMD, Texas Instruments, and Qualcomm -- have announced the development of their own iteration of the 64-bit ARM-based server chips. 

In fact, ExtremeTech believes that AMD is developing a hybrid processor, wherein its x86 and ARM cores will be working side by side on the same chip. This will give AMD an upper hand, and allow it to introduce a modified ARM-based chip for the Windows PC environment.

Probable impact on Intel
These ARM-based server entrants can have a severe impact on Intel's growth. Firstly, the chipmaker won't be able to singlehandedly decide chip pricing and their depreciation rate. The end of its monopoly, therefore, will be detrimental to its gross margins.

Secondly, enterprise clients will get to choose the type of chips fit for their needs. This will not only provide flexibility to enterprise scale data centers, but also snatch away Intel's precious share in the server-grade chip market. In that case, the server segment will no longer add stability to Intel's overall top line.

Plus, if the ARM-based offerings are received well in the market, companies like AMD might make a similar move in the desktop and laptop chip segment in the future. Though ARM still doesn't support the Windows PC platform, the possibility of these chips making it to the desktop segment over the coming years still can't be ruled out.

Foolish final thoughts
The prospects of ARM-based server chips look great on paper. However, it remains to be seen how these chips actually stack up against the tried-and-tested Intel Xeon. Plus, ARM-based chips still don't support a wide range of operating systems.

These factors will need to be addressed before ARM-based server chips can threaten Intel's established market position. Investors should therefore keep an eye on performance metrics as well as OS compatibility of these next-generation ARM chips.

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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 July 15, 2014, at 11:16 AM, SemiWiki wrote:

    Nice article.

    Personally I think large server customers such as FB and Google will work with both AMD and Intel to get a more competitive balance.

    This will hurt Intel financially but help Intel be more competitive. Just my opinion of course.

  • Report this Comment On July 15, 2014, at 1:50 PM, mtechac wrote:

    AMD's deep knowledge of 64-bit CPU/APU architectures and its vast server IP will be a key factor on ARM gaining chunks of Intel's server market.

    ARM's new 64-bit ARM server chips will not have the obsoleted and legacy overhead that x86 architecture have and have huge optimization capabilities, which means the ARM servers will begin eroding Intel's server business with each of the 64-bit ARM iterations.

    Intel x86 iterations are more expensive, take longer to implement, and they are tied to their lagacy hardware/software and any change will negatively impact its usability in many areas.

    From all the companies, AMD will be the company providing the most impact on Intel server market share because of their new APU/CPU architectures, their huge/mature CPU/GPU IP, and the impact that new AMD technologies, like HSA/hUMA/hQ, will have in newer generations of the AMD hardware.

    Qualcom, Samsung, etc. will eventually be competing with Intel, so they will be eventually eroding Intels market share. Even Apple and other companies may pitch-in in the server arena...

  • Report this Comment On July 15, 2014, at 4:14 PM, ta152h wrote:

    Oh my, this isn't a very informed article. In fact, it's flat out wrong.

    First, Intel chips being able to run more complicated instructions gives it a performance penalty, not a bonus. In the Haswell processors, these overly complicated instructions are not directly executed,they are broken down into instructions that can be executed. This requires extra transistors, and extra pipeline stages, the latter of which lower performance due to increased penalty for branch misprediction.

    Just looking at AMD's Puma and comparing it to Intel's Haswell should tell you that even running the same instruction set, there are wide disparities in power use and performance goals.

    Because x86 is an inferior instruction set, it will require more size and transistors, but that's not why it's so much bigger, it's just a small part. Haswell is very wide, has very effective branch prediction, has large reorder buffers, has enormous cache, and can run at far higher clock speeds than ARM processors (and this does take transistors).

    Compare this to AMD's Puma processor, which runs at half the clock speed (roughly), and is much narrower, has (and needs) far fewer OoP resources (since it's only two wide), has much smaller caches (and only two levels), and is much smaller than Haswell. Yet, the same instruction set. It's just for different markets.

    Also, Intel and AMD are not the only server processor makers. Have you ever heard of a company called IBM? It stands for International Business Machines. Look it up. Also look up POWER 8, which has far greater performance than anything Intel or AMD has. It's the king of the hill, but it's also very expensive.

    How about Oracle? Ever hear of SPARC? If you're going to write these articles, you really should have.

    Even so, Intel still has the lion's share of the server market, although IBM's small market share still generates very good revenue because it's such a high margin part. AMD has been largely squeezed out, but ARM's superior instruction set may give them another chance in a couple of years. Certainly nothing they have now will reverse it to any degree, but 2016 isn't very far away, and they'll have another opportunity to compete. So far though, they haven't demonstrated the ability to make a good higher-end processor, but ARM could change that.

  • Report this Comment On July 16, 2014, at 12:05 AM, EnterpriseArch wrote:

    Unfortunately for the author he showed how narrow his view of the world is with the article in claiming that only Intel and AMD are the only two server based chip manufacturers. And, that Intel has unrivaled dominance in the enterprise. Besides being laughable it is just factually wrong. But, the author does represent so much of the real world which is uninformed.

    As @ta152h said, there are reputable products from Power, SPARC and Itanium. However, for the past 4 years there are only 2 chip sets that are competitive in the enterprise - Intel in the 2 & 4 socket entry level space and Power servers. Nothing wrong with HP-UX but Itanium is dead. Solaris is fine but Oracle is milking the SPARC name for it's mindshare to sell x86 servers with more of its software. IBM finished off SPARC and Itanium with Power7 and just introduced Power8 with 1 & 2 socket models delivering performance that is +/- 2X core for core better than x86 whether it is Ivy Bridge EP or EX v2. Great example is the SAP S&D 2 Tier where a 2 socket 24 core P8 matches a 4 socket 60 core IB EX v2 solution. http://global.sap.com/solutions/benchmark/sd2tier.epx

    Besides running the venerable IBM i and #1 UNIX in AIX on the most secure, scalable and flexible hypervisor called PowerVM built on mainframe IP, it also runs traditional Linux or Linux in Little Endian mode. Users can choose either PowerVM or PowerKVM as their hypervisor - IBM is embracing the community instead of clubbing them on the head to come to them. Run any or all of these OSes on the same server at the same time (a few restrictions apply esp if using PowerKVM). As far as cost - if you say they are expensive then you are wrong! IBM offers a Linux only version of the Power8 servers that have x86 price parity. The models that run Linux and AIX are price comparable to x86. The cost is close but you have to look at the solution. Almost always with Power you need far fewer servers because they are very reliable and they can run highly utilized - up to 90% with QoS. A single x86 may be 1/4th the price of a Power8 running AIX but if you need 4 of them to scale out and cluster then the hw TCA is the same and you added more cost for software and maintenance not to mention complexity, etc. Also, Power is the only platform to control software licensing on just about any product that licenses by core. For the example shown above with the SAP benchmark, just think if that was Oracle. On Power, you only license the cores required for Oracle. Say you need 6 cores on a 16 core server then you pay for 6 cores. On a x86 server you pay for all of the cores (yes, times their licensing factor of .5 and yes Power is 1.0 so it is twice as expensive so says the Oracle and x86 seller OR the people who are financially motivated to scare you away from Power and into buying the low cost (FUD) x86 server (and don't pay attn to the qty line). 6 cores times 1.0 is still 6. That 15 core IB EX v2 is 7.5 or 8 cores and you will prob have to cluster it so that is now 16 core licenses plus the Oracle RAC licenses. You get the idea. Insert whatever product you want though. It applies to IBM software as well - if you want to control software, run it on Power! Want fewer servers - run it on Power! Want fewer admins/FTE's - run it on Power! Want your servers to be available near non-stop - run it on Power! Want to perform maintenance concurrently with virtually no downtime - run it on Power!

    Looking over all of the past articles written by the author going back to the beginning shows zero articles on IBM except for one related to software. He now writes a article with multiple wrong assertions. But, thanks for giving me the chance to talk about a real enterprise chip - IBM's Power8 processor - http://www-03.ibm.com/systems/power/hardware/s824/index.html

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