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Factors Influencing Intel’s Data Center Business in H2 2018

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How would H2 2018 be for Intel’s data center business?

The first half was strong for Intel’s (INTC) DCG (Data Center Group). Demand outlook seems strong in the second half. Gartner estimates the worldwide public cloud computing market to grow 21.4% YoY (year-over-year) to $186.4 billion in 2018. The growth in cloud computing would drive demand for Intel’s high-performance Xeon Scalable server CPUs (central processing units).

Xeon Scalable accounts for 50% of DCG’s product mix, leaving a lot of room to grow. Intel plans to start ramping production of the next-generation Xeon in early 2019.

However, the server market might see some headwinds in the fourth quarter, as the second round of US tariffs on Chinese imports would make servers expensive. Moreover, strong demand for servers and PC CPUs is creating a supply shortage.

Intel is prioritizing the manufacturing of server CPUs, but the shortage is encouraging server OEMs (original equipment manufacturers) like Hewlett-Packard Enterprise (HPE) to fill the gap with rival Advanced Micro Devices’ (AMD) EPYC server CPUs.

The expanding data center market has created several direct and indirect competitors for Intel. It competes with NVIDIA (NVDA) and Xilinx for data center accelerators and AMD for server CPUs.

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Intel’s data center strategy

During the company’s second-quarter earnings call, Intel’s interim CEO Robert Swan stated that Navin Shenoy, DCG’s general manager, focused on protecting the company’s server CPU market share and expand the segment’s portfolio to tap a bigger market. Shenoy expanded DCG’s offerings beyond server CPUs to include a complete rack scale consisting of networking products like Ethernet and Fabric, Silicon Photonics, 3D XPoint memory, and accelerators for AI (artificial intelligence) workloads.

Swan stated that these supporting products saw strong penetration in the data center market. So, PSG’s (programmable solutions group) 18% YoY revenue growth in the second quarter was driven by a 140% increase in data center programmable solutions.

Swan added that Intel has launched its 3D-XPoint-based Optane Persistent Memory DIMM (dual in-line memory module) for the data center market. Google (GOOG) is adopting Intel’s Xeon Scalable and Optane memory.

Next, we’ll look at Intel’s edge computing business.

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