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Intel looks to Data Center, Memory, IoT for Growth

At its annual investor's meeting last week, Intel didn't issue many changes to its roadmap for computer products, but did reiterate some major changes in the way the company sees itself in an era of slowing or even declining PC sales.

November 23, 2015
Krzanich and directions

At its annual investor's meeting last week, Intel didn't issue many changes to its roadmap for computer products, but did reiterate some major changes in the way the company sees itself in an era of slowing or even declining PC sales. While a number of executives confirmed the company's commitment to Moore's Law, Kirk Skaugen, general manager of the client computing group gave only a bare bones roadmap, confirming that the third-generation 14nm design, known as Kaby Lake, is on track for 2016, with the first 10nm design, Cannonlake, on track for 2017.

While talking about the possibilities of 2-in-1s and Windows 10, Intel CEO Brian Krzanich said Intel isn't counting on client computing for growth. Instead, he said the data center, memory business, and Internet of Things (IoT)areas are where Intel is investing for growth, in part building off intellectual property created by the client computing group.

"The explosion of cloud computing is just beginning," Krzanich said, noting a transition from a cloud driven by information from or about people to data coming from things.

Krzanich said in 2016 the cloud will surpass the enterprise as the largest part of the data center group. In IoT, he said Intel has a range of products from the Curie processor to Atom. In memory, he talked about how processors are getting so fast that there needs to be fundamental changes in architecture, pointing to the partnership with Micron on 3D NAND and, most importantly, 3D XPoint memory. In all these cases, he said there is a "virtuous cycle" that connects these three things together and that will be sped up by the company's pending acquisition of Altera. He talked about the importance of wireless and its need in the IoT market and an opportunity due to the transition to 5G networks, but said Intel is being "careful and cautious" to do it in a profitable way.

Giving more details on client computing, Skaugen said he sees "unprecedented innovation" in the PC space. Although sales of PCs are slightly down this year and Intel is officially projecting a decline for next year (albeit with some growth in revenue due to increasing share mix), he sounded more optimistic, noting that there are more than 1 billion client computers that are more than three years old still in service, and 600 million that are four to five years old. He said that offers an opportunity for a refresh, led by new form factors such as all-in-one designs and 2-in-1 convertible notebooks; a growing segmentation in levels of Intel processors such as the Core M 3, 5, and 7 processors; and new user experiences such as the RealSense cameras, which he said allowed for "ambient computing." He pointed out that a new sixth-generation Core (Skylake) processor was 150 percent faster and offered 30 times the graphics performance of a 5-year-old PC.

Skaugen and 2-in-1Skaugen and 2-in-1

Skaugen was particularly bullish on 2-in-1 designs, saying that many buyers had gone into a store thinking about a premium tablet but purchased a 2-in-1 instead. Additionally, traditional laptop buyers are upgrading 8 to 12 months earlier because of these designs. He said sales of 2-in-1s grew over 40 percent in the past year and should grow even faster in the coming year. He believes that in the future no one will need a traditional clamshell; instead everything will convert.

Skaugen also pointed to other form factors from gaming desktops to mobile workstations to compute sticks. and touted Intel's work to fix "user pain points" through wireless display and charging, moving to biometric passwords, and replacing legacy interfaces – though he indicated this was a multi-year vision.

Overall, he said, Intel's share of client computing has gone up by 10 percent since 2010 (mostly at AMD's expense), with a higher mix of Core processors with higher average selling prices.

Going forward, Skaugen was bullish about Intel combining Thunderbolt and USB-C on same connector, by Intel's support for Wi-Gig technology, and its improvements in graphics. He suggested that over time, Wi-FI and WiGig might well become integrated onto the main processors. He also was particularly bullish about the roll that Optane SSDs based on the 3D XPoint memory chips, which he said would appear first on enthusiast gaming desktop PCs in 2016, followed by mobile.

He touched on Intel's efforts in mobile and wireless. Intel still seems like it has a long way to go in mobile, and while it does offer SoFIA designs in conjunction with Rockchip and Spreadtrum, seems to be de-emphasizing phones, at least for now. But he did talk a lot about the transition to 5G and how Intel wants to have a full spectrum of wireless support, saying the company hopes to participate in proofs of concept for 5G at the 2018 Winter Olympics in Korea and the 2020 Summer Olympics in Japan.

Bryant and cloud marketBryant and cloud market

Diane Bryant, general manager of the data center group, focused a lot on how cloud computing was changing that group's product. Over the next four years, she said Intel expected a greater than 20 percent compound average growth rate (CAGR) for its business with communications and cloud service providers, and about 20 percent for its high-performance computing business with government, academia, and scientific customers. But, she said, the company expected its business with traditional enterprise IT to have a less than 5 percent CAGR. In fact, she said, this year for the first time, cloud computing sales were larger than those for enterprise IT.

Earlier in the day, Intel Chief Financial Officer Stacy Smith said that in 2013, about half of Intel's data center group business was enterprise sales. He predicts that in 2016 there will be even thirds among enterprise, cloud, and the combination of other segments, including high-performance-computing, workstations, networking, and storage.

Bryant said the cloud computing market is diversifying significantly, with the "Super 7" large clients –– Alibaba Amazon, Baidu, Facebook, Google, Microsoft, and Tencent – growing at a 30 percent CAGR over the past four years, while the next 50 vendors were growing even faster, at a 40 percent rate. She noted that this business was more diverse than you might think, with platform-as-a-service accounting for only 10 percent of the market, and software-as-a-service (SaaS), including everything from Twitter to Oracle serving consumers and business, accounting for 74 percent of the market.

She said this business is currently 2/3 consumer and 1/3 business, but she believes the business share will eventually increase to 40 percent. She said that of enterprises adopting cloud services, about half are conversions from on-premises solutions and half are new services.

Bryant discussed new business opportunities as more vendors use the cloud to provide new kinds of businesses. She cited General Electric as moving much of its traditional IT to Amazon Web Services, but developing a private cloud for its Predix platform for the Internet of Things; BMW planning to have 10 million connected cars by 2018; John Deere's plan for precision farming; and Honeywell's system for tracking first responders with wearables and sensors.

She sounded particularly bullish about the networking market, which she described as "the fun one," because it was a $17 billion market for chips, about the same size as the server CPU business. She saw a transition from specialized ASICs and ASSPs in this market to FPGAs such as those made by Altera and CPUs; and said Intel's market share has grown from 5 percent in 2013 to 9.5 percent in 2015.

She said that AT&T, SK Telecom, Verizon, and Vodafone are now deploying network function virtualization using Intel hardware.

Looking forward, she talked about three new product lines: silicon photonics, where she said Intel had the only on-die integrated laser; its Omni-Path high performance fabric, which she said would be on a multi-chip package with Intel processors by the end of 2016, and eventually integrated on die; and 3D XPoint Memory DIMMS, which she said would be sampling with the Skylake version of the Xeon chip next year. Overall, she predicted a 15 percent growth rate for the data center group, including a 12 percent growth rate in CPUs and the rest coming from non-CPU products.

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About Michael J. Miller

Former Editor in Chief

Michael J. Miller is chief information officer at Ziff Brothers Investments, a private investment firm. From 1991 to 2005, Miller was editor-in-chief of PC Magazine,responsible for the editorial direction, quality, and presentation of the world's largest computer publication. No investment advice is offered in this column. All duties are disclaimed. Miller works separately for a private investment firm which may at any time invest in companies whose products are discussed, and no disclosure of securities transactions will be made.

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