Currently, Intel has an absolute leading position in the data center market. However, Intel’s chief financial officer and CEO recently stated that their data center business is facing challenges. Nomura Securities also pointed out that Intel is trying to prevent the loss of 15-20% of data center processor shares. AMD.
Did Intel's reply prove that AMD did pose a serious challenge?
Two reasons for the slowdown in data center business growth
The performance of Intel's data center business announced last quarter was a staggering increase of 20% year-on-year. It also set Intel's revenue record.
At Intel’s recent earnings conference call, Robert Swan, chief financial officer, said that although Intel’s data center business should continue to grow rapidly in the second quarter of 2018, it is expected that growth will slow.
For reasons, Swan thinks there are two. Swan's first reason is that When Intel and other companies talk about growth, they are usually talking about growth compared to the same period last year. With this in mind, it is not difficult to understand why Intel's growth rate will slow in the second half of 2018.
The following table shows the year-on-year growth of the Intel Data Center Group in 2017:
From the table, it can be seen that Intel’s data center group’s growth in the second half of 2017 was higher than in the first half of 2017 (the fourth quarter’s performance was particularly strong). This means that in the second half of 2018, Intel reported a higher growth benchmark than 2017. The first half is much higher.
Another reason is that Swan said Compared to the first half of the year, Intel will face 'more intense competition' in the second half of 2018.
Intel has dominated the data center processor market for many years, so it does not have to deal with the pressure of too many competitive environments, but this will change in the second half of 2018, and multiple data center processor vendors will increase the number of new products. Shipment.
Impact of Data Center Services on Intel and AMD
More than just the chief financial officer, Nomura Securities recently released a research report saying that Intel CEO Brian Krzanich is 'very cautious' when Intel will lose server shares to AMD in the second half of 2018.
Analysts said: 'This is not news, but what we think is interesting is that Krzanich has not drawn a firm line because it involves AMD's potential revenue in servers.'
According to analysts, Krzanich is talking about trying to stop Intel from losing 15-20% of its data center processor shares to AMD.
The shift from almost 100% of the market share to the mission of 'not allowing AMD to occupy 15-20% of the market' means that Intel does believe that AMD poses a very serious threat to its lucrative data center business.
Earlier, Intel has publicly expressed its expectation that its data center group (currently revenue and profit is Intel’s second largest business) will become its main growth engine in the coming years. In 2017, Intel’s data center processor business revenue was US$17.44 billion (Intel included Data center group revenue for non-processor products was $19.06 billion in 2017).
If AMD can get 15% to 20% of this revenue, annual data center processor revenue may be between $6.22 billion and $3.49 billion, and this number will grow as the market expands.
This competition can affect Intel in two ways.
First, if other processor manufacturers gain share, Intel will lose market share, and Intel's data center growth will also slow down.
Second, since maintaining the current market share is in Intel's best interests, the pricing strategy may be more radical than in the past. If the average selling price falls due to fierce competition, this will naturally lead to a slowdown in revenue growth as well as gross profit and operating margin. decline.
From AMD's point of view, considering that AMD's total revenue in 2017 is US$5.33 billion, analysts expect it to reach US$6.7 billion by 2018. The increased data center revenue may actually bring benefits to AMD.
In addition, because this revenue may be higher than AMD's average gross margin, it may have a more positive impact on AMD's profitability.
In short, AMD’s share of important data center processors from Intel is clearly positive for AMD, and for Intel, it is a significant negative impact.
Intel's response
After the Nomura report was published, the response to Intel’s response in seeking a reply was that Intel decided not to elaborate on data center competition and Nomura’s remarks to Brian Krzanich.
Intel's full statement:
We have seen tremendous development opportunities in the data center. By 2021, the market size is estimated to reach 70 billion US dollars. Based on our current market position, our market share in the data center will increase. In order to win, we will continue to maintain the CPU's Leading position and offering the broadest product portfolio, these product portfolios will change the competition in the data center.
We are ready for a competitive environment in 2018, and we have included this factor in our financial forecasts, and we are in a competitive position. We are still very confident in our product roadmap and competitive position. For example, The Intel Xeon processor expandable series represents the largest advancement in platform functionality over a decade, and later this year we will also introduce a breakthrough new Optane DC memory and storage technology specifically targeted at the data center.
We see significant opportunities for growth in the data center -- an estimated $70 billion market opportunity by 2021 where we have an opportunity to grow our total silicon datacenter market segment share from where we are today. To win, we will continue our history of CPU Leadership and deliver the broadest portfolio of products that, when combined, change the basis of competition in the data center.
While we are prepared for a more competitive environment as we move through 2018, we've already factored that into our financial forecast and we're in a great position to compete. We were very confident in our products, our roadmap and our competitive position For example, Intel® Xeon® processor Scalable family represent the largest advancements in platform capabilities in a decade and later this year we'll introduce breakthrough new Intel Optane DC persistent memory and storage technology architected specifically for the data center.
In this statement, Intel acknowledged it would face a 'more competitive environment' and stated that its current financial guidance already reflects the increasingly fierce competition between AMD and other companies.
This is because Intel claims that it is very confident in its products and Xeon processor platform capabilities and is in a 'competitive position', but CEO Brian Krzanich sold Intel stocks that could be sold late last year.
This seems to be telling analysts that Intel's 'work' is to prevent these stocks from losing control of their losses.
In addition, although Intel's statement indicates that its 2018 financial guidance has taken into account the 'more competitive environment', the reality is that AMD has stated publicly that its goal is to achieve 'middle size' data center processors by the end of 2018 market share.
