Data centers – Tech Narratives

Intel had a pretty good quarter for the most part, expanding margins as several of its divisions performed better off the back of rising prices and lower unit costs. The only division that didn’t grow was the security division (home of McAfee), which Intel has already announced it intends to spin off. Client Computing, home of Intel’s traditional PC business but also newer areas like tablets, phones, modems and so on, grew by 6%, though in large part because of rising prices (up 7% year on year) rather than volumes (down 4% year on year). The trend in Data Center, which makes up a little under a third of revenue, was similar, with volumes down 1% but prices up 6%, driving overall growth, though at a slower rate than in the past, and its margins have also fallen recently as it invests in new processes which should pay dividends over the longer term. Intel’s non-volatile memory group benefited from the release of Intel’s new Optane memory products, which have contributed to very rapid growth, but which has also plunged that division into the red because of heavy investment in the new processes and technology. IoT is also growing at a decent clip, though it’s much smaller than the two big divisions. One other division is Intel’s Programmable Systems Group, which was formed when it acquired Altera, which made filed-programmable gate array (FPGA) technology. That’s growing at a decent clip and is also now profitable, which is good progress from when the acquisition closed. Overall, Intel’s two main businesses are performing well for it at the moment, though the fact that it’s having to invest heavily to remain competitive in several key areas has held margins down below where they might be.

via Intel (PDF)

Intel

The Decline of PCs

Microsoft Pledges to Use ARM Server Chips, Threatening Intel’s Dominance – Bloomberg (Mar 8, 2017)

The data center business at Intel accounts for almost a third of its revenues, has high margins, and has been growing considerably faster than its Client Computing segment (which includes PCs, tablets, and mobile phones). And it’s done well in large part because of commitments from big players like Microsoft to using its chips in their data center servers. But now Microsoft is saying it plans to switch to using ARM-based chips made by Qualcomm in its Azure server infrastructure instead, which could put a dent in Intel’s future growth and reduce its share from the 99% cited in this Bloomberg article. This isn’t imminent – it’s a step on a path Microsoft is committed to, but hasn’t been rolled out to any customer facing servers yet. But ARM-based chips have been cited as potential substitutes for Intel chips in server farms for some time now, so this could be the beginning of a dramatic shift in the next few years. That’s obviously terrible news for Intel, for which the data center business has been a useful source of growth and margins in recent years. Meanwhile, this is such a small business for Qualcomm today that it doesn’t even get mentioned in its quarterly earnings materials, but that could obviously change rapidly going forward.

via Bloomberg

The Decline of PCs