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Understanding Intel in the Microserver Market

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Data center market

In the previous part of this series, we saw that public cloud providers are slowly eating up enterprise demand for data centers and may have stronger bargaining power in the long term. The global data center server market is expected to grow at a compound annual growth rate of 5.7% from 2015 to 2019, according to Technavio.

Let’s now look at the competitive landscape in the data center market, which Intel (INTC) currently dominates.

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Microservers

Intel accounts for 98% of the microserver market. ARM Holdings is its main competitor in the microserver space. In order to compete with Intel, ARM would need to build a strong and workable software ecosystem and this will take time.

Competition

Moreover, Advanced Micro Devices (AMD), which lost its market share to Intel due to wrong technological decisions, is looking to make a comeback with its new “Zen” core design. Even Qualcomm (QCOM) and Broadcom (BRCM) are looking to enter the market with their ARM-based servers.

Intel doesn’t consider microservers to be a big market. However, it looks to maintain a monopoly in the market with its 14nm (nanometer) Xeon D processors, launched in March 2015, and the upcoming Denverton microserver chips scheduled for launch in the second half of 2016.

Industry outlook

The global microserver market is expected to reach $302.1 billion by 2019, growing at a compound annual growth rate of 43.4% between 2014 and 2019, according to Transparency Market Research. The growth will be driven by the increase in cloud computing and web hosting services, which have relatively light computing workloads.

Intel currently has the lion’s share in the data center space, and this is likely to remain unaffected in the short term. However, challenges lie ahead in the long term as cloud companies eat up enterprise demand and companies like IBM and AMD enter the server space with cost-effective products. Intel looks to wade off competition through innovation and a comprehensive product portfolio.

You can invest in Intel through the SPDR S&P 500 ETF (SPY). It has 0.84% exposure to Intel.

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