Intel claims fastest transition of server market, ever

Vendor posts solid results and is bullish on server growth prospects

Intel has claimed the fastest ever transition of the server market as it posted strong earnings for its second quarter of fiscal 2010.

In a presentation to analysts outlining the financial results, Intel data centre group vice-president, Kirk Skaugen, said vendor was “in the midst of our broadest and most compelling refresh in our server history”.

Since launching new Xeon server chips in the first quarter of 2009 Intel has been supported by the launch of 230 products.

“What ended up happening is we had the strongest embracing and set of innovation we’ve ever had in the server market,” Skaugen said.

“What that meant is we drove the fastest transition, in an economic downturn, we’ve ever had in the server market. Launching March 30th by the end of the year over 90 per cent of our two-socket systems were on the Xeon 5500 or Nehalem. So this really, really took off and IT understood these return on investment calculators.”

Intel’s data centre business unit reported revenues of $US2.1 billion for the second quarter, which is a surge from the $US1.48 billion recorded in the same quarter a year earlier.

In March this year, Intel launched new Xeon server chips that operate up to 60 per cent faster than previous server processors.

The 15 new processors in the Xeon 5600 line include low-power chips and come in quad-core and six-core variants; the processors are faster than the older Xeon 5500 series chips.

As a result Intel is bullish on its growth prospects across the data centre, high performance computing, cloud computing and SMB markets.

“The products we announced in the first quarter are delivering the largest leap in performance we’ve ever had in Xeon,” Skaugen said. “We think that delivers across every segment of the market, from mainframes down to small business servers and storage, an unprecedented return on investment.”

Notably the company maintains a “relatively aggressive forecast for cloud”.

“If you look at Gartner it is at a 26 per cent annual growth rate. We think that delivers around 1 billion virtual machines into the cloud by 2015 and even so that is only about 16 per cent of our Xeon TAM [total addressable market],” he said. “So a billion virtual machines is only 16 per cent of our TAM even though we are looking at more than 25 per cent growth rate year on year in cloud.”

Intel is also looking to boost its share of the storage market within the data centre, currently trending at around 20 per cent, to 80 per cent.

“What we are projecting is by the end of this year is we will go from 20 per cent to 70 per cent design wins in the sockets of storage and by the middle of 2011 we will be at 80 per cent of the design wins of sockets in storage,” Skaugen said. “This includes people like NetApp, Hitachi Data Systems, EMC, all those kinds of folks all the way up to mission critical products.”

In addressing the common question of whether virtualisation and consolidation was going to slow down the server growth rate and thus impact Intel’s financial performance, Skaugen pointed to the potential for unit sales growth in SMB, high performance computing and the storage segments.

“We believe that virtualisation is utilised in about 20 per cent of the overall market. Why is it 20 per cent? Well, if you are buying a small business server for the first time you are not going to be consolidating workloads – you are buying your first server,” he said. “If you are in high performance computing you are pegging out your CPUs or you are supposed to be at 100 per cent utilisation. It’s very unlikely you are going to be virtualising.”

Skaugen added he saw huge upside in enterprise spend as the improved performance of its chips began to compete better with RISC and mainframe systems.

“Intel and AMD enjoy about a 95 per cent of the units of the worlds servers today but there is about a 40 million unit install base in servers. But just 5 per cent of the world’s units still make up $16 billion of enterprise spend.”

Overall the company reported net income of $US2.9 billion for the quarter ended 26 June and estimated revenue for the third quarter to be $US11.6 billion, plus or minus $400 million.

Tags serversintel xeonintel

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