Intel: Our server growth never stops

Every quarter is fourth quarter


If you are expecting a dip in server spending in 2011, then you must not be running Intel.

In a conference call with Wall Street analysts going over the chip maker's fourth quarter of 2010 financial results, Paul Otellini, the company's president and chief executive officer, was asked if the server business would return to the quarterly up and down cycles that were common prior to the dot-com boom.

"Boy, I haven't dug into that for a while," Otellini explained. "I don't think so. I think we're seeing just pretty consistent growth. I mean, it tends to go in cycles. This cycle started with Nehalem seven quarters ago, and I don't see it abating. Historically, if I go back before the Internet data center bubble, the fourth quarter was always the strongest quarter for servers because capital budgets expired and people bought servers before the year changed. I haven't seen that as being the driving trend for several years now."

The Nehalem-EP familiy of chips, formally called the Xeon 5500s, launched into the trough of the Great Recession in March 2009 and was one of the few products in IT Land to buck a downward trend that year. Server sales took it on the chin for a few quarters, to be sure, and Intel took some lumps, but rival Advanced Micro Devices seemed to get a more lumps because Intel's Xeons had drawn to parity or better with AMD's Opteron server chips. And by the time the six-core Westmere-EP Xeon 5600s and eight-core Nehalem-EX Xeon 7500s came out in March 2010, AMD took some bigger lumps because server makers took their sweet time coming out with Opteron 4100 and 6100 products. They had focused most of their system engineering into Intel-based products.

"We don't see a cycle here where people finish and we see a dip," Otellini said when asked if a dip was coming, as many people believe must be coming considering how strongly server sales were up in 2010.

Intel's thesis is that the advent of smartphones, tablets, and other computing devices that will ship in the billions over the next five years will compel cause companies providing applications and services for these devices to buy boatloads - perhaps quite literally - of servers. (And in some cases, the servers may even stay inside of shipping containers, now that I think about it). Intel estimates that 245 exabytes of data were whipped around the Internet in 2010, and that over five years that number will grow to over 1,000 exabytes and will "require high-performance servers from Intel for years to come."

In the fourth quarter, Intel's Data Center Group, which makes chipsets and processors for servers and workstations, posted revenues of $2.5bn, up 15 per cent sequentially from Q3 and up 24 per cent from the year ago period. All of Intel's other product lines were flat sequentially, so this really stood out. And both revenues and average selling prices were helped significantly by pent-up demand for Xeon 7500 processors (formerly known as the Nehalem-EX) and their related chipsets, which are used in fat memory machines with two, four, and eight sockets.

Server virtualization and consolidation are driving up the sales of these machines, which are also eating into Unix and proprietary system sales no matter how much IBM, Hewlett-Packard, Oracle, and Fujitsu might want to believe otherwise. For the full year, the Intel Data Center Group had sales of $8.57bn, up 35 per cent from 2009.

Intel is expecting to be able to grow its revenues by around 10 per cent in 2011, which is a bit cooler than the 24 per cent growth it was able to generate in 2010 to hit its record $43.6bn in revenues. The company did not provide projections for how the server side of the business might grow, but Otellini said that the "Sandy Bridge" upgrade cycle would start first on desktops and laptops. Sandy Bridge EP and EN Xeons with four, six, and eight cores for servers with one and two sockets are expected in the third quarter, with a ten-core Westmere-EX refresh for those fat multi-socket boxes perhaps in the second quarter. ®

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