Analysts reaction is very mute. Here is some of the comments:
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Qualcomm Unveils Server Tidbits: Street Curious but Skeptical
By Tiernan Ray
Shares of wireless chip giant Qualcomm (QCOM) are up 19 cents at $57.85, after the company yesterday gave out a bit more information about its push to sell chips for servers, the market dominated by Intel (INTC).
Qualcomm announced it began sampling its server chip with “tier-one data centers.”
CEO Steve Mollenkopf had first disclosed the company’s intention to enter Intel’s market back in November of last year, at the company’s analyst day meeting in New York. Mollenkopf at the time made reference to a $15 billion annual chip opportunity come 2020, so clearly the company has set its sights on what it sees as a multi-year effort.
The company described the system-on-a-chip:
Targeted at hyperscale data center customers, Qualcomm Technologies’ server SoC technology is designed to tackle some of the most common data center workloads, including Infrastructure as-a Service (IaaS), Platform as-a Service (PaaS), big data and machine learning. In development for more than two years, the SDP includes a custom server-class 24-core SoC built using advanced FinFet technology. It integrates all of the standard server-class features including PCIe and storage. The first in a roadmap of production single-chip server SoCs will include a fully custom core built on FinFet technology and will be one of the most advanced server-class SoCs on the market.
Qualcomm said it is partnering with programmable-chip maker Xilinx (XLNX), and with high-speed interconnect maker Mellanox Technologies (MLNX). Both of those stocks, however, are trading down on the news today.
Another name trading down is Intel itself, off 40 cents, or 1.2%, at $32.13, despite Q3 PC numbers last night that were better than some feared, and that should presumably help Intel’s Q3 report, due next Tuesday.
Christopher Rolland with FBR & Co., who has a Market Perform rating, writes that Qualcomm is one of the last remaining “Titans” trying to challenge Intel. The director of Broadcom’s (BRCM) “Project Vulcan” server-chip effort has left the company, he notes, and he thinks Avago Technologies (AVGO), which is in the process of acquiring Broadcom, has the kind of penchant for cost-cutting that will mean the shuttering of that business.
Rolland is skeptical of Qualcomm’s efforts:
While Qualcomm has a clear understanding of ARM architectures, its heritage is squarely based in mobile rather than server/networking technologies. Additionally, we have been very vocal about its lack of both fabric and networking assets. If Qualcomm is serious about penetrating the $20B networking market and $14B compute opportunity dominated by Intel’s x86 monopoly, we believe the company should purchase either Applied Micro (inexpensive acquisition that gives it another custom ARM server core, plus fabric and networking assets) or Cavium (more expensive but higher- quality asset providing a “road map in a box” for networking/compute). Both purchases would barely put a dent in Qualcomm’s massive cash balance and would give the company an entrance to large high growth markets.
He thinks going with Mellanox for networking capabilities is noteworthy: “As Qualcomm lacks switch silicon capabilities, it needs an independent partner, and Mellanox was an interesting choice.”
Rolland is surprised to hear that Qualcomm is implying it might even build Xilinx’s technology into Qualcomm’s own chips:
Xilinx disclosed a “multi-generational” relationship with Qualcomm, as its FPGA accelerator partner. Given the Altera tie-up with Intel, this was not a surprise as we expect Xilinx to “ARM” Intel’s competitors. However, the disclosure indicated that the company would also offer a highly integrated product (vs. at the card level), implying an in-package or SoC solution, a surprise.
On a somewhat more upbeat note, Hans Mosesmann with Raymond James thinks this is a plus for ARM Holdings (ARMH), which licenses the chip instruction set that Qualcomm will use in the parts.
“Net-net: Qualcomm’s official entry into the ARM server game solidifies ARM as a tangible force in servers in the coming years, legitimizing early players such as Applied Micro Circuits, AMD, and Cavium,” he writes.
But it’s still early days for Qualcomm in this fight, he writes:
The industry has known of Qualcomm’s server/datacenter efforts since late-2013, by our reckoning. Yesterday’s announcement adds to the formation of critical mass for ARM server licensees, leading ARM to recently increase targets for server market share to 25% by 2020 (from prior target of 20% share). Based on the press release and discussions with industry players, we believe Qualcomm is likely a year away from any kind of ramp, and we believe the company is seeking potential customer feedback before committing to specific architectural formats and features. Interestingly, Qualcomm is not sponsoring and/or exhibiting at the upcoming ARM TechCon conference in November – a must-do event for all things ARM – but is represented in technical sessions, which implies a more passive role and suggests to us that we are likely in early days for this player.
As far as Cavium (CAVM), which has been showing silicon for servers for some time now, Romit Shah of Nomura Equity Research, who has a Neutral rating on the stock, thinks Qualcomm’s description implies some advantages over a comparable Cavium part:
Qualcomm’s FinFET SoC vs. Cavium’s 28nm will likely given an edge to Qualcomm in power consumption and performance. That said, Qualcomm’s SoC seems to lack a robust networking integration and SMP support (dual-socketed) giving Cavium an edge. A lower core count vs. ThunderX is not a drawback at this time, in our view, as final silicon will likely have a higher core count.
He mulls whether Cavium will be an acquisition target for Qualcomm, or will be passed over:
If Qualcomm decides to do ARM server chips on its own, then it could over time impact the M&A premium that is likely built into Cavium’s multiple. Conversely, entry of deep-pocketed Qualcomm in this space, which is obviously very opex intensive, could make Cavium a motivated seller, in our view.
Cavium stock is up 68 cents, or 1%, at $66.19.
He’s also skeptical, overall, of Qualcomm, or anyone, succeeding:
Entry of Qualcomm in this space does provide more momentum to ARM servers. However, we think that building a meaningful and sustainable traction in the ARM server space would require several years of integration of server-class features in ARM SoCs, heavy investments in software ecosystem, and multiple generations of single-core throughput improvements vs. x86 (current ARM server SoCs behind by 3-5x).
