Qualcomm – Built to serve

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Triple whammy benefit no longer held up by software?

• Intel finally has a credible challenger in the server market as Qualcomm has made an entrance in conjunction with partners Mellanox and Xilinx.
• With growth rapidly declining in smartphones, tablets in negative territory and MediaTek aggressively attacking at the high-end, Qualcomm has been looking for new avenues for some time.
• Wearables, IoT, e-health, automotive and so on all offer long-term potential but servers are big and are here and now.
• The data centre generates $12bn – $14bn of revenues for Intel where it has over 90% share of the market.
• Furthermore, the rationale for using an ARM based chip in the server is very strong as the operator of the data centre gets a triple whammy in terms of benefit.
  • First: The ARM processor consumes far less power than the equivalent processor from Intel, meaning less power consumed and less heat generated.
  • Second: Less heat generation obviates the need for fan cooling meaning cheaper build costs and a smaller footprint.
  • Third: Less heat consumption also means less air-conditioning is needed for the data centre, reducing costs even further.
• The net result is substantially lower running costs because power is far and away the biggest operating expense of a data centre (excluding depreciation).
• Hence, at first glance it would seem to be a no brainer to run all one’s servers on ARM based chips but there is a huge problem: software.
• Intel has dominated this market since its inception and because of this, all the software written to run on servers is based on the x86 processor.
• This means that any company that wishes to switch to an ARM-based server will have to completely re-write the software that runs its operation.
• To date this has been an unsurmountable challenge as the cost and difficulty of doing this has vastly outweighed any of the benefits gained from using ARM.
• However things have changed such that an alternative to Intel might just have a chance.
• In the early days of servers, everyone got them off the shelf from suppliers like IBM of HP but that has now changed.
• The really big ecosystems like Google, Facebook and Apple increasingly want customised servers which means that they design the hardware and write the code themselves.
• This gives them the ability to do whatever suits them in the data centre.
• Furthermore, they are now at such a size that the power bill has become so huge that it is worth considering alternatives.
• I suspect that this will begin with a new Digital Life service or design of server where the code has not yet been written and where it is just as feasible to write it for ARM as Intel.
• This is why the Qualcomm offering is targeted directly at the hyper-scale data centres where the servers are custom designed and built.
• I think that Qualcomm represents the first really credible entrant into this field which to date has been populated by a series of start-ups who have been unable to overcome the software problem.
• Qualcomm is the king of execution and if it can get a foot in the door, then there could be real trouble on the horizon for Intel.
• Intel’s financial performance for the last few years has been almost single-handedly driven by the data centre and the outlook for it to get a position in mobile remains extremely bleak.
• Its early days but Qualcomm is threatening to do to Intel what MediaTek has done to it.