There's been a lot of hype these days about big players in consumer tech developing their own custom processors for just about everything -- and Intel (INTC 1.30%) is usually seen as the company set to suffer. There's been a lot of very good work in the low-power CPU core space from the likes of Apple(AAPL 0.95%), Qualcomm, and ARM. But investors are too quick to extrapolate this to server processors that offer extremely high performance levels and features that small mobile chips could only dream of. While Google (GOOGL 0.07%) is great, there's very little chance that it's going to be outgunning an Intel Xeon anytime soon.
Intel's server chips are beastly
Think about the following for a moment. Both IBM (IBM 0.58%) and Oracle (ORCL -0.07%), via its acquisition of Sun Microsystems, have decades of high-performance microprocessor design experience. In fact, in much the same vein as Apple designing its own chip for the iPhone/iPad, Oracle and IBM have routinely designed their own chips for many of their high-end servers and storage systems. Even with this capability, and even with complete control of their operating systems and software stacks, both of these players still ship plenty of systems with Intel x86 hardware, while hardware with their own chips continue to become even more niche by the day.
Why do investors suppose that is? Well, it's a combination of things. First of all, on a performance-per-watt basis, it's very tough to compete with Intel's product stack at all different power levels -- and Intel is extending this range every year. The company very deftly allocates plenty of research and development money to its server chips and, coupled with its multi-year lead in transistor technology, puts out very high-performance and power-efficient chips for just about any data center computing need. It's not as though Intel has a monopoly here -- it's just that its products have eclipsed the competition's, making it look like a monopoly situation.
Intel will do as Google commands
Intel is very protective of its data center business, which includes server CPUs and also other things like Ethernet cards, switches, and so on. At numerous events, the company has been quite explicit that it is willing to bend over backwards for important customers. Not only does Intel give these companies volume discounts, but it has signaled that it will work with these major players to develop custom silicon. Today, Intel does this to an extent by varying the speeds and power levels of the processors. But the company will soon be doing "semi-custom" designs that marry Intel's battle-hardened CPU blocks with custom IP blocks from customers -- or custom IP blocks built in collaboration with said customer.
So, it's tough to imagine that Intel wouldn't build a chip, or even a family of chips, custom-tailored to Google's needs. That's not to say that the company's current lineup of server processors wasn't built with Google's and other major companies' input. Intel always gathers input from its hardware customers and software partners on what features they would like to see in their chips. But there is certainly room for further customization beyond the traditional lineup.
Foolish bottom line
Yes, Intel has its weaknesses, and letting mobile get by early on was a major flop, but the data center group is an area of unequivocal strength. The company has been gaining share and growing its core data center businesses while expanding nicely into storage, networking, and communications infrastructure. To think that Intel, which is keenly aware of any and all impending competitive threats, will not treat its major customers like royalty to keep their business is probably not an assumption worth betting real money on. Whether you think Intel will succeed, however, is another matter entirely.
