FBR full article
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Intel: FBR, Benchmark Cheer Tablet, Server Prospects
By Tiernan Ray
The Street today offers a couple of endorsements of Intel (INTC) on multiple fronts, but especially as regards the battle with ARM Holdings (ARMH) and its licensees, such as Qualcomm (QCOM), Nvidia (NVDA), Broadcom (BRCM).
Intel shares today are up 92 cents, or 3.8%, at $25.20, while shares of ARM are down $1.52, or 3.5%, at $42.36.
FBR Capital’s Christopher Rolland raised his rating on Intel to Outperform from Market Perform, and raised his price target to $28 from $26, in part because he believes licensees of ARM’s technology will only take away perhaps as much as 10% of Intel’s server microprocessor market share.
In a note reviewing the world of the “microserver,” more power-efficient machines with highly integrated “system-on-chip” processors, Rolland, who is hosting a conference call with clients this morning, details how the ARM camp may take share in servers:
Borrowing technology from some of the world’s most powerful supercomputers, microservers attempt to deliver a step function in performance and delivery per dollar for some of the largest Web companies in the world. The proliferation of Web-enabled devices, smartphones, and tablets is driving massive increases in smaller, more transactional workloads, and thought leaders like Google, Amazon, Facebook, and others are demanding more accommodating hardware. In response to these demands, new server silicon players are rising to the challenge and driving innovation. Starting in early 2014, the undisputed server king Intel will face an ARMy of challengers, which we believe will capture more than 10% of the total server market by 2018, accounting for more than $1.3 billion in annual revenue.
However, in his dedicated note on Intel, Rolland brushes aside concerns about Intel, writing that “we acknowledge the challenges ahead for Intel in the PC market, but now believe the company has added more than enough new avenues of growth to replace lost PC units.”
Rolland believes that Intel will cede share in micro servers, but he also thinks that the company has some formidable potential parts ahead, with the help of its “Silvermont” CPU architecture that was recently unveiled for mobile computing:
ARM-based server SoC will get off to a slow start and even by 2018, we only expect Intel to lose 10% share, more than replaced by overall server growth. Despite ceding 10% share in servers, we estimate that overall server growth is still expected to allow Intel to grow units at a mid-single-digit CAGR for 2013–2014 […] The highest-performing Centerton SoC, the S1260, operates at 2.0 GHz and at an 8.5-watt TDP. In a benchmarked comparison provided by Anandtech.com between the Atom N2800 (closest chip to Centerton) and Calxeda’s ECX-1000, the two chips performed on par. However, Intel’s chip was an 8.5-watt TDP versus Calxeda’s 5-watt TDP, and the Atom SoC did not include integrated management and networking. So according to Anand, “The current A9-based Calxeda EC 1.4 GHz is about 40% faster and consumes half the power of the Atom S1260.” Therefore, it is not unreasonable to assume that the performance per watt ratio of the Calxeda SoC will be up to three times better. Avoton, built on Silvermont, a quantum leap forward. Avoton will be based on the Silvermont architecture and will integrate a 1 GbE controller on die. Improvements to the Silvermont core over the prior Bonnell core launched in 2008 include “out of order execution,” 22 nm process technology, and vastly superior power efficiency owing to Intel’s 3-D Tri-Gate manufacturing process (Tri-Gate is only currently available for Ivy Bridge and not Atom).While still well below many of the high- bandwidth ARM counterparts, we believe it is a sign of things to come. Avoton will also have 16 lanes of PCIe 2.0, out of order processing, and up to eight CPU cores with speeds up to 2.8 GHz at a 15- watt TDP. It should also be noted that Intel will ship a follow-on microserver SoC just a year later at 14 nm in the Airmont architecture as Atom falls into Intel’s traditional tick-tock model.
Moreover, as networking “collides” with computing, Intel has a chance to offer chips that are a “game changer,” Rolland thinks, having bought startup Fulcrum Microsystems, and key assets from QLogic (QLGC), and Cray (CRAY):
Advanced Micro Devices’ (AMD) purchase of SeaMicro and three Intel acquisitions with various switching assets highlights a growing trend among those in the computing market: the need for robust networking and fabric capabilities […] Over the next two years, we expect [Intel] to launch a top-of-rack switch code-named “Red Rock Canyon” that may for the first time offer a Xeon server processor with integrated 10 Gb Ethernet switch silicon on die. Intel has made a series of various interconnect acquisitions: Fulcrum Micro, QLogic’s InfiniBand assets, and Cray’s supercomputing fabric, all of which we understand Intel expects to integrate “on CPU.” While this transition may be slow at first, make no mistake about it, Intel is moving into networking.
In a similarly positive vein, The Benchmark Company’s Gary Mobley, reiterating a Hold rating on ARM shares, writes that Intel is making inroads in ARM’s partners’ mobile franchise, citing the announcement this morning by Samsung Electronics (005930KS) that it will offer a 101.-inch “Galaxy Tab” tablet computer running Google‘s (GOOG) Android on top of a 1.6-gigahertz Intel part.
Writes Mobley,
The news Intel has finally landed a tier-one tablet design win could take a bite out of ARM’s share price, a stock that trades at 43.0x fwd-12-month non-GAAP EPS estimates (consensus). The Samsung announcement confirms earlier reports from Reuters last week and Android.OS a few weeks which both speculated on such a design win for Intel. Since those reports from began to surface over the past 11 days, ARM’s share price has declined approximately 12%. Samsung’s decision to begin using Intel in a marquee Android device is a coup for the U.S. chipmaker as it races to establish itself in a mobile market it was slow initially to recognize and invest in […] To put things into perspective, application processors used in tablet PCs should represent only 2%-3% of ARM’s PD (Processor Division) royalty units during 2013. However, the royalty rate per unit ARM fetches from tablet processors is 5.0x-6.0x that of the corporate average, meaning tablet- related (tablet processor only) royalty revenue represents approximately 10%-15% of ARM PD revenue, or 5%-10% of total revenue.
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