Data center opportunity
We’ve already discussed how Qualcomm (QCOM) is focusing on leveraging its ARM architecture in the IoT (internet of things) space and is also moving fast in developing the next-generation wireless technology of 5G. The huge volume of data generated by IoT devices would create the need for power-efficient data centers with flexible workloads.
Qualcomm expects data center to provide an $18-billion opportunity by 2020. While the US would continue to be the biggest market for data center, China (FXI) would emerge as the second-largest market for the data center as companies like Alibaba (BABA) scale up.
Competition picks up in the data center market
Companies are shifting their workload from servers to distributed networks referred to as “hyperscale” data centers. This is giving rise to competition in the data center market, which is currently dominated by Intel (INTC) with a more than 99% share.
Meanwhile, the top five data center companies, including Google (GOOG) and Amazon (AMZN) Web Services, are looking for alternatives to create competition that would reduce prices and improve the performance of server chips.
ARM-based server chips
Specifically, ARM Holdings aims to increase its share in the data center market from less than 1% to around 25% by 2020 by tapping public cloud providers such as Amazon Web Services. ARM licenses its chip designs in return for a fee, and Qualcomm is one of its biggest customers. Many companies such as Applied Micro Circuits, Cavium, Broadcom (AVGO), and Advanced Micro Devices (AMD) tried to grab a market share using ARM-based server chips but failed.
Data center opportunity
However, Qualcomm is better placed to tap the opportunity for power-efficient servers. It can replicate its success of building power-efficient processors for mobile in the server space. It can also leverage its experience with integrating several components such as sensors, modems, and microprocessors on a single chip called SoC (system on chip). It recently partnered with Xilinx (XLNX) to integrate the latter’s FPGAs (field programmable gate arrays) in its server chips.
Qualcomm has also entered into a joint venture with China’s Guizhou province to manufacture server chips. In the next part, we’ll discuss whether the macroeconomic and industrial environment will be conducive for Qualcomm’s growth.