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Intel Ramping Server Chips As Competition Heats Up

 December 12, 2012 06:02 PM
 


(By Mani) Intel Corp. (NASDAQ: INTC) launched its Atom S1200 (code named-Centerton), a 6W dual-core, server processor with key features required for mainstream data center applications: 64- bit, error correction and virtualization. The move is considered as part of Intel's strategy to expand its server chips amid increasing competition from rival Texas Instruments, Inc. (NASDAQ: TXN).

Historically, Intel has projected that Atom/ARM-class products would address about 3 percent of the server market by 2015. Thus, at face value, this new product's purpose appears to blunt the (64-bit) ARM threat. However, Centerton is viewed as one element of a broader server strategy now defined by addressing different workloads rather than just building "big iron."

[Related -Intel Corporation (INTC): An 18.1% Yield From Intel?]

Sales and margins for a Xeon versus Atom-based server rack are likely similar. Thus, assuming Intel broadly executes, for a given sales potential, it should be able to generate similar sales and margins for different workload solutions.

"Thus, if Intel's example of ~110 Xeons at ~$300/unit (~80% GM) vs 560 Atoms at $64/unit (~70% GM), both of which would fill out a server rack, are comparable, success of Atom hardly appears to be a threat to its business model," UBS analyst Steven Eliscu said in a client note.

While Intel does not offer the seamless Ethernet-based interconnect capability that AMD (SeaMicro) or Calxeda offers, it announced it will integrate that functionality in 2013, which is as much as a year ahead any ARM-64 chip. In addition, Intel will integrate fabrics in its Xeon chips, which likely includes InfiniBand for Xeon Phi.

[Related -Intel Corporation (INTC) and 5 Other Stocks That Could Pop on Earnings This Week]

Intel's announcement comes at a time when its arch rival Texas Instruments recently introduced six 28nm new multi-core system-on-chips (SoCs) targeting a new market – cloud data centers.

These parts are clearly the first round of custom silicon development based on ARM cores, which threatens Intel. The goal of these products is to break into the high performance but low power segment of the cloud data centers.

From an end market perspective, nearly all segments seemed to be impacted by the overall weaker macro environment. In addition, softness were experienced in the PC, industrial and communication infrastructure markets.

Weak PC sales and slowing revenue from emerging markets mean both Intel and Texas Instruments are keen on diversifying their revenue base in to servers/data centers. While the overall impact of ARM cores into the server and data center market will only be measured over the next 5 years, competition is heating up.

These chips, with the integration of security processing, networking and switching, reduce system cost and power consumption, allowing developers to support the development of more cost-efficient, green applications and workloads, including high performance computing, video delivery and media and image processing.

However, Dallas-based Texas Instruments is not likely to get credit as a supplier of Data Center processors until they announce material design wins. Likewise, Intel is unlikely to see multiple expansion until investors grow comfortable knowing that the ARM server threat is limited and that Intel can continue to count on above average growth and margins from the server and data center segment.

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