Intel: No Signs Of Datacenter Slowdown
Whatever issues that chip giant Intel is facing in the client segment of the computing market, it has very little challenging its authority as a provider of compute engines for the datacenters of the. In the first quarter ended in March, Intel turned in healthy financial results in its Data Center Group, bolstered by recent upgrades to its Xeon E5 and E7 processor families.
In the quarter, Intel’s overall revenues were up 1.5 percent to $12.76 billion, and bet income fell 4.8 percent to $1.95 billion as the company made investments in its ramping of 14 nanometer and 10 nanometer chip making facilities. The company is also losing money in the smartphone and tablet portions of the business, but top executives said once again that they remain committed to being a force in this part of the computing business and CFO Stacy Smith went so far as to tell Wall Street that Intel “was not afraid of the low-end.”
“We have made a lot of changes, and we have a lot of work to do,” said CEO Brian Krzanich on a call with Wall Street analysts to go over the financial results, and he summed up the company’s position succinctly: “If it computes, it is best to do it with Intel inside.”
The Data Center Group has been a key driver of profits at Intel for many years now, and the first quarter was not an exception. In the quarter, revenues for this business, which sells X86 chips for servers, storage, and networking gear as well as custom silicon for switches and other interconnects and motherboards, rose by 11.2 percent to $3.09 billion. Operating income for Data Center Group rose even faster, up 15.1 percent to $1.32 billion. If you do the math, then 42.6 percent of revenues drop to the middle line for datacenter products. PC chips, by contrast, brought in $7.94 billion in sales, and 35.3 percent of that drops down as operating income. The chips made for the Mobile and Communications Group stomached a 61.3 percent revenue decline to $156 million due to product transitions and intense competition and posted an operating loss of $929 million. Intel recently broke out these mobile chips separately to try to demonstrate that the margins in the PC business were still quite good, but the net effect is to show that mobile chips currently wipe out any incremental gains that server chips have over PC chips. But, Intel can’t quit markets. That is how it got into this position in the first place.
Intel does not talk about specific product families within the Data Center Group when it reports its financials, but Smith said in his prepared CFO statement that unit volumes for this part of Intel were up 3 percent compared to the year-ago period and average selling prices rose by 8 percent. Intel has said for some time that many enterprise and cloud customers have been buying higher bin parts than was customary in prior years as they use heftier systems for virtualization platforms or to chew on data. The remarkable thing is that even though unit volumes for Data Center Group were down 7 percent sequentially from the fourth quarter of 2013, average selling prices were still up a point. You can chalk that up to the Xeon E7, which Krzanich said had a “strong reception” from enterprise customers.
Sales of processors into hyperscale cloud operators, who tend to buy directly from Intel, as well as processors sold to network equipment and storage array makers, were all up by more than 20 percent each in the quarter, said Krzanich, and even the core enterprise computing segment that has been sluggish throughout 2013 saw a 3 percent bump upwards in the first quarter of 2014. Enterprise server spending was not as strong as Intel had been projecting during the second half of 2013, but at least it is not declining or being affected by the “Haswell” Xeon E5 processors expected in the second half of this year.
“We continue to see strength in the enterprise, and that is pretty much everywhere,” Krzanich explained, and Smith said that Intel was forecasting for Data Center Group to have low single-digit revenue growth for all of 2014 compared to flat revenues of the company overall. When asked if the future Haswell Xeon E5 processors and their “Grantley” platform (which is just a way of saying the CPU plus the chipset) would cause a pause in buying on the part of OEM customers and their downstream channel partners and customers, Krzanich said that based on the forecasts Intel’s customers were making for later this year there will not be a pause in sales of current “Ivy Bridge” Xeon E5 processors and their “Romley” platform.
That said, the growth rate looks like it will cool as 2014 progresses, and a lot of that has to do with tough compares and the ongoing efficiency gains from server virtualization and cloud computing. Getting growth in sales of the raw Xeon chips and related chipsets as companies are trying everything in their power to cut back is something of an accomplishment and demonstrates the elasticity of demand for compute.
The Broadwell follow-ons to the Haswells will be etched in 14 nanometer technologies and will come out for Core PC chips and Xeon E3s first, to be followed later by Xeon E5s and E7s if history is any guide. (The first Broadwells are expected sometime in the second half of this year.) After that comes “Skylake,” which will use the same 14 nanometer processes but which will feature a whole new architecture as Intel does every other generation. Skylake is scheduled for the second half of 2015, according to Krzanich, and will likely follow the same basic rollout as the prior several generations of server chips have: Xeon E3s, then Xeon E5s, then Xeon E7s. Skylake chips are rumored to support DDR4 main memory, PCI-Express 4.0 peripherals, and have an L4 cache to boost throughput. Intel has said nothing publicly about the Skylake Xeon feature set.