Intel's server chip biz holds steady ahead of Ivy Bridge Xeons

Is the market eager for Ivy Bridge, or waiting for Haswell?

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Analysis You might think that Intel would have been talking a bit more excitedly about the Xeon server chip lineup when it walked through its numbers for the second quarter yesterday. Particularly with the PC business on the skids.

The workhorse "Ivy Bridge-EP" Xeon E5 v2 processors are slated for launch in the third quarter and the drafthorse "Ivy Bridge-EX" Xeon E7 v2 processors for fat four-socket and eight-socket machines are being prepped for delivery to server makers by the end of the fourth quarter. The "Avoton" Atom server chips, with integrated Ethernet ports and eight cores and probably the best microserver chip Intel has designed to date, are coming soon, too.

But as El Reg reported after the numbers came out on Wednesday, a lot of the talk was the expansion of Intel's Atom processors into the smartphone, tablet, and other embedded products, but don't get confused.

The Atom and Xeon processors used in data center products are the foundation that will help Intel expand into these markets that are adjacent to the PC and try to rebuff the incursions by a slew of ARM server chip makers who will take a run at the data center in earnest starting next year.

The Data Center and Connected Systems Group makes chips and chipsets for servers, storage arrays, and switches as well as whole motherboards and network adapters that plug into them, and during the second quarter its sales were $2.74bn. That is only a third of a point revenue growth from the year ago period, which is not entirely surprising given the Ivy Bridge ramp that is expected in the second half of the year.

The last thing that any channel partner selling servers or server chips wants to have is too many of the current "Sandy Bridge-EP" Xeon E5 processors in the barn when the new chippery hits the streets. (There was no "Sandy Bridge-EX" Xeon E7 part, so there is no problem there, and the "Westmere-EX" Xeon E7 chip is looking a bit long in the tooth indeed at this point.)

More surprising was the fact that operating income for the Data Center and Connected Systems Group was only $1.23bn, representing a 9.9 per cent drop compared to Q2 2012. Intel did not explain why income took a much bigger hit in the quarter than revenue did.

But CFO Stacey Smith said in his commentary on the Q2 results that sales platform volumes in the data center products were up 1 per cent, but average selling prices were down 1 per cent. And compared to the first quarter of this year, revenues were up 6 per cent in synch with a volume bump, but ASPs were down a point.

It is safe to assume that ongoing research and development costs for the impending Ivy Bridge and future Haswell Xeon chips ate into profits a bit, but Intel did not elaborate on why profits for data center chips and chipsets we off more than the drop in ASPs.

There could be some shifting mix towards different, lower-priced SKUs across the Xeon line. There's probably some small impact from collapsing Itanium server sales at Hewlett-Packard.

On the conference call with Wall Street analysts, Brian Krzanich, Intel's newly minted CEO, said that sales of products aimed at hyperscale data centers were up more than 40 per cent year-on-year and that sales of chippery for storage products also grew more than 40 per cent.

The part of the Data Center and Connected Systems Group business peddling into switch, router, and other networking gear makers grew more than 20 per cent. With that kind of growth in these segments, that means the plain vanilla enterprise server market must have been down quite a bit for the group to be essentially flat.

Krzanich added that sales into enterprise data centers were down a bit in the first half, but as the macroeconomic situation improves through the remainder of this year, sales to this customer set, which is the backbone of the Intel business still, would pick up.

"We're still confident in the second half growth of our data center business overall," Krzanich said. "As we mentioned, we are seeing strong growth in the cloud, in high performance computing, in our networking and storage."

The question now is this: Will there be pent up demand for Ivy Bridge Xeons with 8, 10, or 12 cores or will customers be looking out further ahead for Haswell variants in 2014 that provide a much better performance per watt profile?

Hyperscale data center operators have to buy machines at a fairly regular pace as they add users and services. There is no getting around that. But the typical enterprise customer can wait it out and extend the life of their machines for an extra year or two when push comes to shove, as it did during the Great Recession, for instance. ®

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