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Intel: Chinese server market second only to US

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Intel's earnings call yesterday left server watchers wondering when China will outstrip the US as the world's biggest consumer of server chips.

Intel's server business was not immune to shrinkage in the first quarter of 2012, and it would be easy to blame it on the delayed ramp of the Xeon E5-2600 processor for two-socket servers, which came out late in the quarter.

But the slight decline in server-related revenues and profits in Q1 probably had more to do with the fact that this year's quarter had one fewer week than Q1 2011 did.

In the quarter ended in March, as El Reg previously reported, Intel booked $12.91bn in sales and $2.7bn in net income. That's a half point decline in sales, but a 13.4 per cent decline in net income. Even accounting for the extra week, Intel's bottom line seems to have been under pressure.

The Data Center and Connected Systems Group, which makes processors and chipsets targeted at server, storage, and networking gear, brought in $2.45bn in sales, down $11m compared to the year-ago period, four-tenths of a point, which is no big deal. But operating income for the data center unit was off 6.5 per cent to $1.14bn. Excluding Atom processor and chipsets, Intel said that PC and server microprocessors and chip volumes were lower than a year ago and platform costs were on the rise, which put the pinch on both the PC and server sides of the Intel house. Intel said that business on servers was adversely affected by disk shortages, but the problem was now largely over. PCs have already recovered.

In a conference call with Wall Street analysts going over the numbers, Paul Otellini, the chip giant's president and CEO, said that Intel saw "continued momentum" in the data center, with its Xeon chips being adopted in servers, storage, and networking in both mature and emerging markets and boasted that the new Xeon E5-2600 chips, launched on March 6 but shipping to early adopter customers since September 2010, was designed expressly to handle the demands of a modern data center.

"Global trends in data centers continue to look favorable," Otellini explained on the call. "We expect that by 2015, Internet traffic will triple and data storage needs will grow by about 50 per cent. This isn't just a mature market phenomenon. Data centers in China have grown at eight times the worldwide average over the last five years, making it the second largest server market in the world."

This begs the question: When does China pass by the United States?

Otellini said that the Xeon E5-2600 processors, which he kept calling "Romley," which is the server platform name when "Jaketown" and "Sandy Bridge-EP" are the actual code names for the processor, has shipped nearly twice the volume of the game-changing "Nehalem-EP" Xeon 5500 processors that Intel launched in March 2009 at the same points in their respective ramps.

The Xeon 5500s took away a lot of advantages that Advanced Micro Devices had in the server space, and server makers, staring down the gaping maw of the Great Recession, hunkered down and put most of their engineering resources into these new Xeons. It will take AMD years to recover from this, and by then, ARM servers could be the real threat to Intel.

Intel is expected to put two more Xeons into the field based on the Sandy Bridge architecture, the Xeon E5-2400 for less expandable yet cheaper two-socket servers and the Xeon E5-4600 for less expensive four-socket boxes than Intel can deliver with its current Xeon E7 processors. The Xeon E7s can be used in machines with two, four, or eight sockets and offer more bandwidth and memory capacity, but they don't come cheap. The combination of the Xeon E5-2600 and the E5-4600, coupled with new "Ivy Bridge" Xeon E3s for single-socket machines and the current Xeon E5-2600s for the two-socket workhorses in the data center will make life very difficult for AMD except in cases where more threads and more cores are important, such as in super-dense virtualized servers.

Intel was in no mood to talk about when the forthcoming Xeon E5-4600 would come out, but Stacy Smith, Chipzilla's CFO, confirmed the existence of "the MP version and the low-end version of Romley" and after getting the cut-throat signal from Mark Henninger, director of investor relations, said "let's just say it is in the not-too-distant future." ®

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