Intel’s Server Market Share To Decline As Competition Heats Up

by Trefis Team
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Quick Take

  • Intel has managed to increase its server market share from 86.6% in 2008 to 95.6% in 2012. We believe that it might lose some share in the future with the entry of ARM and increasing competition from AMD.
  • The growing trend towards cloud computing, server virtualization and strong growth in the high performance computing market are some of the current trends driving server demand.
  • The global market for cloud computing is estimated to increase from $41 billion in 2011 to $241 billion by 2020. The global high performance computing market is estimated to grow at a CAGR of 8.3%, reaching $44 billion by 2020.
  • ARM Holdings is working with TSMC to close its technology gap with Intel in the server market.
  • With the SeaMicro acquisition and collaboration with ARM, AMD has expanded its server portfolio and is confident of regaining its lost market share in the future.

In addition to dominating the PC microprocessor market, Intel (NASDAQ:INTC) also leads the server microprocessor domain with a more than 90% market share. Servers manage large amounts of data, direct data traffic, perform complex transactions, and control central functions in local and wide area networks and on the Internet. With the rapid increase in online data processing, the server market is a fast growing division. Intel sells its processors directly to server manufacturers such as IBM, Dell, HP, etc.

While Intel’s PC client group contracted by 3% in 2012, its data center group (DCG) marked a 6% annual increase in revenues despite slow demand from the enterprise market. Owing to significant growth in the cloud and the high performance computing segments (HPC), the DCG showed increased strength in Q1 2013 with a 7% sequential increase in sales. (Read Q1 2013 Earnings Article: Intel Holds Its Ground Despite Dismal PC Sales)

Having lost its market share to AMD several years back, Intel has managed to increase its share from 86.6% in 2008 to 95.6% in 2012, as per our estimate. With a growing amount of content moving online, data processing requirements are increasing at a fast pace which is driving growth in global server shipments.

While we believe that Intel will remain the leader in server processors for years to come, we feel that its market share could decline as AMD’s server processors become more competitive with the SeaMicro acquisition. Additionally, the entry of ARM-based players in the server market will intensify competition for the company.

See our complete analysis for Intel

Growth In Cloud And High Performance Computing

Cloud computing, server virtualization and strong growth in the HPC market are some of the current trends driving 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.

Research firm Forrester projects the global market for cloud computing to increase from $41 billion in 2011 to $241 billion by 2020. [1] To accommodate the dynamic needs of their clients, cloud providers are building large virtualized data centers to host a constantly changing mix of on-demand resources. Additionally, server virtualization is driving the need for newer servers to replace older ones. Server virtualization is essentially server consolidation which enables users to run multiple applications on a single server instead of multiple servers.

The robust growth across Intel’s high-performance computing and large data centers supporting the cloud were the primary factors behind its increasing data center revenues. Going forward, the company expects to see high double digit growth in these two segments for the next few years. The global high performance computing market is estimated to grow at a CAGR of 8.3%, reaching $44 billion by 2020. [2]

Intel continues to expand its server offering by refreshing its product line across all ranges of performance, performance per watt, and performance per watt per dollar. At IDF Beijing this year, the company announced its next-generation Atom processor (Avoton) for the microserver segment of the market and its Ivy Bridge product for Xeon cloud servers. Both products will start shipping in the latter part of 2013 and will increase Intel’s leadership in the market.

Threat From ARM-TSMC Partnership

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. The processors include TSMC’s finFET technology that are said to be higher performing and more energy-efficient than the current chips. The low-power chips will leverage 3D transistor technologies similar to Intel’s Tri-Gate architecture.

Intel’s Ivy Bridge processors, which features the company’s new Tri-Gate transistor technology produced on a 22nm process, is currently more advanced in design compared to competitor products. Both Intel and TSMC have been working on 3D transistor designs for more than a decade. But Intel was the first company to commercialize it although TSMC’s FinFET technology is similar to that of Intel’s.

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. TSMC’s technology, when combined with the ARMv8 64-bit design, is expected to challenge Intel in the server and PC markets.

ARM Holdings claims that the collaboration with TSMC not only help it close the technology gap, but also provide customers access to the FinFET technology to bring high-performance, power efficient products to the market. [3]

Increasing Competition From AMD

AMD has seen a continuous decline in its server processor market share since 2008 mainly on account of execution issues. 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.

The line-up of Opteron chips based on the Bulldozer micro-architecture further strengthens AMD’s ability to offer greater choices to a data-starved base of enterprises and growing cloud customers. AMD claims that its suite of processor and graphics IP, third-party processor cores and SeaMicro’s innovative supercomputer fabric enable it to deliver differentiated solutions.

AMD is in the process of designing ARM technology based processors in addition to its x86 processors for multiple markets, starting with cloud and data center servers. The new generation server products will start production in 2014. The collaboration with ARM will make AMD the only processor provider to bridge the x86 and 64-bit ARM ecosystems. Additionally, it is looking to move its CPUs from 32nm to 28nm. We believe that AMD could regain some of its lost market share in the future.

Our $27.58 price estimate for Intel is at a premium of over 10% to the current market price.

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Notes:
  1. More Predictions on the Huge Growth of Cloud Computing, Wall Street Journal, April 21, 2011 []
  2. Worldwide High Performance Computing (HPC) Market Forecast 2015-2020, Market Research Media, February 22, 2013 []
  3. ARM, TSMC Deal Aims to Put More Pressure on Intel in Servers, Mobile, eWeek, July 23, 2012 []
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