Google and Facebook Shaking Server market

See more about server marketplace at Google, Facebook Top Buyers of Intel Server Chips


and at SSD, Flash, iPad, PC, Tablet, and Servers Architecture

Ron

Insightful, timely, and accurate semiconductor consulting.Semiconductor information and news at - www.maltiel-consulting.com

Google and Facebook Are Shaking Up the Server Market

By TIERNAN RAY 

http://online.barrons.com/article/SB50001424052748704882404578382574172584946.html?mod=BOL_hpp_dc#printMode

The 'Net giants are shunning traditional suppliers for cheaper, made-to-order hardware.

Hewlett-Packard and Dell, the top two global vendors of server computers, are caught in a whirlwind of change.
The personal-computer market, which generates enormous revenue for both firms, gets most of the attention when the companies' attempts to right their businesses are analyzed. But the humble server, which many assume is the stable part of the computer world, is experiencing far greater change -- change that, in coming years, could pay off in a big way for the duo, or cause them tremendous pain.
Hewlett-Packard (ticker: HPQ) made up 26.5% of worldwide server sales volume in the December quarter; Dell (DELL), 21.3%. Servers handle a myriad of tasks in corporate- and Internet-data centers, from serving up files to desktop computers in offices to processing online purchases to streaming video to tablet computers. Last year, the server market was worth roughly $52.5 billion on shipments of 9.7 million units, according to research firm Gartner.
That's relatively minuscule, compared with 2012 PC shipments of 352 million units. But the corporate market is a bastion of profits that offsets the low margins on PCs.
In the fiscal fourth quarter ended in January, for example, Hewlett-Packard's enterprise group, although not a perfect proxy since it sells networking and storage equipment in addition to servers, accounted for almost 16% of HP's total profit. PCs produced only 3% of the company's earnings, even though they generated greater revenue.
And unlike the personal-computer market, which is fighting tablets and smartphones for attention, servers are constantly finding new uses, and they're not going away anytime soon. "Servers have always been a gluttonous market," says Gartner analyst Jeff Hewitt, meaning the industry just can't get enough of them. Richard Fichera, who follows the industry for Forrester Research, even argues that building server farms is "the élan vital [vital impulse] of modern society."
Fichera and Hewitt agree that a couple of massive changes are under way.
One is that large Internet stars such as Google (GOOG), Facebook (FB) and Amazon.com (AMZN) are building their own servers by picking out parts and having machines assembled to spec by some outfit other than Dell or HP, often one of the Asia-based "original design manufacturers," such as Inventec, Quanta or Wistron. Google and Amazon "have incredibly low-cost infrastructures" as a result of using this commodity hardware, says Fichera.
Public and private organizations, such as schools, government and smaller companies, don't have the resources of a Google, but they're eagerto get the kinds of savings that can come from buying cheap, no-name hardware.

The category of "other," meaning not HP and Dell, made up 35% of server unit shipments in the fourth quarter, up from 31% a year earlier. Hewitt expects the figure to rise this year.
"The substitution of commodity servers for name brands is a real thing," observes Fichera. He cites a "large Wall Street firm" that has more than 75,000 servers, of which 20% are nonbranded. Hewitt says that Google and other nonbrand buyers have "been one of the primary drivers of unit growth" in the server market for some time.
The other trend is toward simple, modular servers -- basically, appliances -- that perform one dedicated task. As Hewitt sees it, the software vendor VMware (VMW) brought about a revolution in servers by allowing companies to use a single machine for several tasks simultaneously. The inadvertent outcome of VMware's software is that some of the server "workloads" -- video serving, database queries -- are now as big as the entire database market in terms of the number of "virtual servers" they employ. That makes it feasible to create specialized, stripped-down servers built for each kind of workload.
And he observes, "Where it gets interesting over the next three to four years is that these low-power processors in our cellphones are all that's needed for certain kinds of server workloads that don't demand a lot of individual CPU horsepower."
Both trends are being helped by the breakdown of the old WinTel regime in computing. Says Hewitt: "For years, if you did what Microsoft (MSFT) and Intel (INTC) told you to do in terms of product design, you could make money." Now, "You can still listen to Intel, but there are other influences weighing on server design."
HP and Dell realize all this, of course. They hope that some outfits that aren't Google will look to them to wrap their brand and support around the cheaper hardware -- to mainstream it. HP and Dell can certainly build server appliances.
But for the moment, both trends favor the no-name vendors of Asia, along with the Silicon Valley appliance start-ups. "There is market pressure on Dell and HP from both sides," says Hewitt. The outcome, he adds, "will depend, in part, on how they respond and whether they want to end up squeezed into a higher-margin but increasingly lower-volume segment of the market."
THE STAR OF BLACKBERRY'S fiscal fourth-quarter earnings report on Thursday was undoubtedly the phone maker's chief, Thorsten Heins, who resonated calm, confidence, and intelligence as he batted away the frantic questions of the business news anchors. This is a man who will go places.
And what of the business? What we know is that BlackBerry's subscriber base is declining; it fell by three million last quarter. Shipments of the new BlackBerry models are off to a good, but not great, start, with one million shipped in the quarter. And the company produced a surprise profit in the three-month period.
The stock (BBRY), which is up almost 22% this year, trades at just 1.2 times tangible book value, and the company has a still significant cash pile of $2.9 billion. All that probably puts a floor under its shares, around their Thursday close of $14.44. What we don't know is whether sales of the new handsets will speed up or slow down, and by how much. The mobile market is fiercely competitive, with Apple (AAPL) and Samsung Electronics (005930.Korea) dominating sales. We don't know how quickly -- or whether -- subscribers will keep sliding. But the drop last quarter -- the quarter in which BlackBerry introduced new phones -- isn't encouraging.
Probably, earnings estimates will rise in coming weeks as the next new model, the Q10, comes to market. This is a stock that still trades based on the premise that BlackBerry the company can be a profitable third- or fourth-place player in the smartphone market. For now, based on those hopes, the stock will continue to levitate. 

Enlarge Image

Google, Facebook Top Buyers of Intel Server Chips

The link below discuss the top 8 buyers of server chips from Intel. It is interesting to notice the rise of Google and Facebook in the list.



These chips are about 20% of Intel's revenues (Intel: Tremendous Growth of Clouds' Servers ).



Ron
http://www.maltiel-consulting.com/


Intel Confirms Decline of Server Giants HP, Dell, and IBM
http://www.wired.com/wiredenterprise/2012/09/29853/

In 2008, says Intel bigwig Diane Bryant, three familiar names bought far more server chips than any other company on earth. That year, she remembers, HP, Dell, and IBM accounted for 75 percent of the revenue Intel raked in from the sale of processors destined for the beefy computer servers that drive the internet and so much of the software used inside the world’s businesses
Intel sells a vast majority of the world’s server chips, so this was a sure sign that a vast majority of the world’s businesses were buying their servers from HP, Dell, and IBM.
But just four years later, Bryant says, the landscape has completely changed. Today, she explains, eight server makers account for 75 percent of Intel’s server chip revenues, and at least one of those eight doesn’t even sell servers. It only makes servers for itself. “Google is something like number five on that list,” Bryant told us on Monday evening, during a dinner with reporters in downtown San Francisco.


That’s right, Google is likely the world’s fifth largest server maker.
Over a decade ago, Google started designing its own machines for the massive data centers that underpin its web empire, looking to save both power and cost as the empire expanded to epic proportions, and this was only the beginning of a movement away from traditional server sellers such as HP, Dell, and IBM. As Bryant points out, other companies are now buying machines directly from “original design manufacturers,” or ODMs, in Asia, working to cut costs in much the same way. This includes Facebook, and according to a former employee of one large ODM, it includes Amazon as well.
In short, some of the biggest server buyers are cutting out the big-name middlemen. Those ODMs are some of the same companies that manufacture machines on behalf of the HPs and the Dells.
Bryant did not list all eight of Intel’s biggest customers. But she did name Quanta and SuperMicro as ODMs who are “growing up into OEMs” — i.e., original equipment manufacturers that sell directly to server buyers — and she mentioned Wiwynn, the new U.S. subsidiary of ODM Wistron. The whole idea behind Wiwynn is to sell directly to server buyers here in the States.
She also said that new server makers in China, including Huawei, are now having a big effect on the worldwide market.

The Big Switch

In 2008, Diane Bryant left Intel’s server group to take over as the company’s CIO, but in January of this year, she returned to lead the group as vice president and general manager. When she arrived, she didn’t recognize the place.
For one, the name had changed. The server group had morphed into the datacenter and connected systems group, encompassing not only server chips but also storage and networking hardware. But the bigger change was that HP, Dell, and IBM were no longer the dominant forces of years gone by.
Dell and IBM did not immediately respond when asked about Bryant’s view of today’s server market. But an HP spokesperson said her comments were inconsistent with the latest server market stats from research outfit IDC, which still put the combined market share of HP, Dell, and IBM at 73.9 percent, down slightly from 78.2 percent in 2008.

‘Google is something like number five on that list.’
— Diane BryantIt should be noted, however, that research operations such as IDC and Gartner don’t have the best view into direct sales by the ODMs — let alone Google’s highly secretive hardware operation — and these hidden parts of the market are increasingly important. It’s the big web players that are moving away from the HPs and the Dells, and most of these same companies offer large “cloud” services that let other businesses run their operations without purchasing servers in the first place.
To be sure, as the market shifts, HP, Dell, and IBM are working to reinvent themselves. Dell, for instance, launched a new business unit dedicated to building custom gear for the big web players — Dell Data Center Services — and all these outfits are now offering their own cloud services. But the tide is against them.
Google now calls itself one of the world’s largest hardware makers, and Bryant’s comments show just how big it has become. Asked about its relationship with Intel, a Google spokesperson merely said: “We work with a variety of vendors to manufacture the equipment we use in our data centers.” But it has long been an open secret that Google buys directly from Intel — and that it buys so much.
This summer, Urs Hölzle told us that Google designs just about all the servers used in its worldwide network of data centers, and though he declined to discuss where these machines are manufactured, it appears that the company contracts with manufacturers in Asia and elsewhere in the world, providing these builders not only with the server designs but with chips and other hardware purchased from component suppliers such as Intel.


Google Not the Only One

In August, Bryant told us that Google is the only web company that buys chips directly from Intel. But Facebook also designs its own servers, and a source familiar with Facebook’s operation tells us that the company purchases directly from Intel too.
However, the source said, Facebook uses a “just-in-time” purchase model, meaning it does not actually acquire and store the chips itself. Intel sends Facebook’s chips directly to manufacturers such as Quanta and Wistron when they’re needed for manufacturing, the source said.
This means that Facebook avoids getting stuck with a warehouse full of old chips it doesn’t want. It simply buys chips as it needs them.
In any event, Facebook is also a big part of the move away from the HPs and the Dells. It has even “open sourced” its server designs, hoping that others will buy similar gear through the ODMs and drive down prices even further.
The social networking giants shows that the lines between the web players and the ODMs are often blurred. Facebook designs its servers in tandem with the ODMs and other hardware makers, and though it negotiates directly with Intel for chips, the ODMs do all the manufacturing. Which one is the server maker?
Though Bryant did not rank the rest of Intel’s largest server chip customers, we’re guessing that Quanta now sits quite high on the list. According to an ex-Google engineer, Quanta has worked with Google in the past on its custom-built networking gear. Facebook is quite open about its relationship with Quanta. And Quanta itself says it has been selling servers, storage gear, and networking switches to multiple web outfits, which jibes with what an ex-Quanta man has told us.

Typically, the big web companies say very little about who they’re buying gear from. Companies such as Google and Amazon see their hardware operations as a competitive advantage best kept hidden from rivals. But Diane Bryant provides another look behind the scenes. And one thing is for sure: HP, Dell, and IBM aren’t the powers they used to be.

Intel: Tremendous Growth of Clouds' Servers

In an interview with Bloomberg (interview) Diane Bryant, Intel VP states; "Cloud growth is tied to people accessing the Internet.

For every 600 smart phones, every 120 tablets there is a server behind it.

Intel architecture runs 90% share of all the servers in the world.  There is an accelerating demand for big cloud data servers, not just for Google and Facebook data servers, but even from companies in emerging markets in China such as Baidu, Tencent...."


Intel benefited from the server growths already in 2011. Its sales grew 24% in 2011.


See earlier April posts

Top 25 2011 Semiconductor Sales Ranking
"IC Insights' report of the top 25 semiconductor companies (see below) states that Intel grew 24% in 2011 due to the purchase of Infineon's wireless segment. It is likely that the growth of databases and cloud servers (20% of sales, 3x PC segment growth) also added to Intel's growth"  

Also in an Intel, AMD, or ARM Servers?
"The article...about low-power servers doesn't mention Intel's large growth in database servers. Intel had more than $10 billion in revenues from ICs sold into data centers, including servers, storage products, and networking"