Here’s How AMD Can Recapture Its Lost Server Market Share

by Trefis Team
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Quick Take

  • AMD’s server market share declined from 15% in 2007 to 4.4% in 2012. With new improved servers, its graphics processing capabilities and its strategy to embrace both the x86 and ARM architectures, AMD can strengthen its foothold in the server processor market.
  • With a 95.6% Intel has a substantial lead over AMD in the x86 server market and almost all the market share lost by AMD over the years has been grabbed by Intel.
  • x86 servers account for over 80% of total server shipments and their revenue contribution increased from 53.6% in 2007 to 68.2% in 2012.
  • AMD will start shipping ARM-technology based chips in 2014 and believes that ARM CPUs have the potential to account for 20% of the server market by 2016 or 2017.
  • By offering manufacturers and data-center operators cheaper and more power-efficient processors,we believe that AMD will manage to re-gain some of its market share from Intel.

AMD’s (NYSE:AMD) server market share declined from 15% in 2007 to 4.4% in 2012. The success of Intel’s Xeon processors combined with AMD’s execution issues are the key factors responsible for AMD’s continuous slide in the server market. However, since the launch of its Bulldozer architecture, AMD has seen a steady increase in demand for its high-end server processors. The company now powers 24 of the world’s top 100 supercomputers and is showcasing speed and throughput of its Opteron chips in the world’s third fastest supercomputer, Jaguar.

Earlier this month, AMD unveiled its strategy to recapture its market share in enterprise and data center servers. With new improved servers, its industry-leading graphics processing capabilities and its strategy to embrace both the x86 and ARM architectures, AMD remains committed to strengthen its foothold in the server processor market.

In this article we discuss the factors driving growth in the server market, ARM’s market share in servers and some recent steps taken by the company to re-accelerate its server processor shipments.

See our complete analysis for AMD

Factors Driving Growth In The Server Market

Cloud computing, server virtualization, rapid rise in the number of connected devices and strong growth in the HPC market are key trends driving global server demand. We estimate global server shipments to increase from 9.6 million units in 2012 to over 15 million units by the end of our review period.

Here are some figures supporting our view:

- With increasing worldwide Internet penetration, the global IP traffic has increased eightfold over the past five years and is estimated to grow at a CAGR of 29% from 2011 to 2016. Enterprise Internet traffic is expected to grow at an annual rate of 18%. [1]

- Research firm Forrester projects the global market for cloud computing to increase from $41 billion in 2011 to $241 billion by 2020. [2]

- The global high performance computing market is estimated to grow at a CAGR of 8.3%, reaching $44 billion by 2020. [3]

Historically AMD Has Lost Its Server Market Share To Intel

Historically, strong demand for x86 servers have been the predominant factor fueling global server shipments. x86 servers account for over 80% of total server shipments and their revenue contribution increased from 53.6% in 2007 to 68.2% in 2012.

Global Server Market

2007

2008

2009

2010

2011

2012

Total Server Shipments (Mil)

8.8

9.1

7.6

8.9

9.5

9.7

X86 Server Shipments (%)

84.7%

84.9%

87.8%

87.1%

84.3%

82.8%

Total Server Revenue ($ Bil)

54.8

52.6

43.1

48.9

52.8

52.5

X86 Server Revenue (%)

53.6%

52.9%

57.6%

65.3%

65.2%

68.2%

Sources: Gartner & IDC Press Releases

With a 95.6%  share in global server shipments, Intel has a substantial lead over AMD in the x86 server market as well. Almost all the market share lost by AMD over the years has been grabbed by Intel.

(In USD Million)

2007

2008

2009

2010

2011

2012

X86 Server Shipment

7.5

7.7

7.6

8.9

9.5

9.7

AMD’s Share in x86 Servers

15.0%

13.4% 10.1% 7.0% 5.5%

4.4%

Collabration With ARM & New Products To Help AMD Re-gain Its Market Share

In October 2012, AMD announced its collaboration with ARM Holdings to design server processors using the ARM technology in addition to its x86 processors for multiple markets, starting with cloud and data center servers. The collaboration with ARM makes AMD the only processor provider to bridge the x86 and 64-bit ARM ecosystems. Code-named Seattle, AMD claims that the ARM-technology based server processors will be faster and more powerful than its existing low-power x86 server processors. The chips will start sampling early next year and will start volume production by the second half of 2014.

ARM Holdings is working with TSMC to optimize its ARM v8 64-bit architecture, aiming to launch SoCs at 20nm and moving toward 15nm in the near future. So far ARM’s designs only support 32-bit computing. However, with the introduction of ARM v8, the company’s designs not only get 64-bit compatibility but also have additional features that are important to data center environments. HP and Dell have already built prototype servers with low-power ARM cores.

AMD believes that ARM CPUs have the potential to account for 20% of the server market by 2016 or 2017. [4] ARM CPUs are cheaper and ship in higher volumes as compared to more expensive x86 chips. Data centers around the world are supporting millions of users with servers running massive numbers of parallel workloads that need the type of small-core chips that ARM, along with its partners, is known for manufacturing. AMD is also working towards making software portable between the x86 and ARM architecture as well as across devices including PCs, game consoles, tablets and smartphones.” [5]

Early last year, AMD completed its acquisition of SeaMicro which makes ultra-dense servers. With the acquisition AMD is better positioned with strong IP and an enhanced product offering to leverage growth in mainstream server-computer market.  Additionally, the company recently introduced two new chips as part of its roadmap for the server market. Both the Berlin and Warsaw chips will be available in the market 2014 onward.

The Berlin chips is a new low-power x86 Opteron chip based on the Streamroller architecture and available in a CPU as well as APU form factor. Targeting data center machines that handle basic tasks such as Web hosting, the processor promises to offer double the performance of existing Opteron X-series chips. On the other hand, the next-generation Opteron chip, code-named Warsaw, targets the high-end server processor market. Warsaw is faster and more power-efficient than existing Opteron 6300 chips.

By offering manufacturers and data-center operators cheaper and more power-efficient processors,we believe that AMD will manage to re-gain some of its market share from Intel.

Our price estimate of $2.91 for AMD is at a discount of over 20% to the current market price.

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Notes:
  1. Cisco Visual Networking Index: Forecast and Methodology, 2011-2016 []
  2. More Predictions on the Huge Growth of Cloud Computing, Wall Street Journal, April 21, 2011 []
  3. Worldwide High Performance Computing (HPC) Market Forecast 2015-2020, Market Research Media, February 22, 2013 []
  4. AMD reboots server technology strategy with first ARM chips, Tech World, June 18, 2012 []
  5. AMD reboots server strategy with the first ARM chips, Computer World, June 18, 2013 []
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