....a positive outlook for Intel in networking
From: Bill Wolf 8/26/2017 7:54:57 AM
Technology Trader
Can Networking Chips Revive Intel’s Start-Up Mojo?
The semiconductor pioneer has seen major business lines stagnate. But the advent of 5G wireless may spur demand for its networking chips.
By Tiernan Ray
Aug. 26, 2017 12:23 a.m. ET
Intel is a start-up again. As odd as it sounds, that may be the best way to view the 49-year-old, $163 billion chip giant.
The markets where Intel (ticker: INTC) dominates, servers and personal computers, don’t show the growth they once did. More than ever, its future rests with initiatives that are promising, but that, like a start-up, require patience on the part of investors.
Intel’s sales of server chips may slow to 7% this year from 28% in 2014. Even that may be too optimistic given revitalized competition from Advanced Micro Devices (AMD). Sales of personal-computer chips, rising perhaps 1.3% this year, are hemmed in for the foreseeable future by the continued decline of the PC.
Sales of desktop PCs are expected to fall by 3.5% compounded annually through 2021, in unit shipment terms, according to research firm IDC. Notebook computers will rise less than 1%. And there again, there’s AMD.
Intel stock is down 4% this year, compared with the 17% rise in the Nasdaq Composite. It is flat over the past 12 months, while the Nasdaq is up 20%.
Intel missed the mobile revolution—that was won by ARM Holdings, now owned by Japan’s SoftBank Group (9984.Japan), which provides the vast majority of chip technology for smartphones and tablets. But now Intel chief Brian Krzanich has pivoted to face new revolutions, buying young companies to take Intel into advanced automotive chips and artificial intelligence. His company two weeks ago closed on the $15.3 billion acquisition of Mobileye, a maker of chips for autonomous vehicles; and a year ago he bought an incredibly promising chip start-up in AI called Nervana Systems. Those deals aren’t going to do much to move the needle on $61 billion in annual revenue at Intel.
PERHAPS INTEL’S GREATEST START-UP OPPORTUNITY lies under its nose, in the realm of computer-data networking. Still a small part of Intel, networking chips may get a shot in the arm in 2019 with the advent of 5G, the next bump up in speed for cellular networks.
The field of data networking has long been dominated by chip makers such as Cavium (CAVM), NXP Semiconductors (NXPI), which is being purchased by Qualcomm (QCOM), and Britain’s Imagination Technologies (IMG.UK). Those chips are used in dedicated networking equipment from vendors such as Cisco Systems (CSCO).
That specialized equipment is gradually yielding its grip to Intel-based chips running on servers, thanks to software that can perform networking tasks generally reserved for dedicated boxes, known by rubrics such as “network-function virtualization” and “software-defined networking.” As a result, Intel’s networking business is “vastly underappreciated by investors,” says Evercore ISI chip analyst C.J. Muse.
Networking chips are contained within Intel’s Data Center Networking Group, which mostly sells server chips for non-networking functions, such as databases and application software. Intel won’t say how much of the $17 billion Data Center revenue came from networking last year. It may be as much as 12% this year, or $2.3 billion, Muse estimates. As server-chip sales overall stagnate, networking sales may rise 21%.
Networking chips are essentially a modification of Intel’s server chips. Last month, Intel unveiled new versions of the server chips, and the network versions. Some observers are impressed with the company’s progress. Intel’s networking chips are more powerful than ones offered by NXP and others, writes veteran chip analyst Tom Halfhill in the prestigious Microprocessor Report. Intel uses its manufacturing prowess to combine more “cores,” the fundamental functional unit of a chip, than its competitors, writes Halfhill.
And Intel has been able to pair its server chip with a second chip, called a hub, he points out, which can double the amount of network data that can be processed without driving up power consumption. That’s important for containing energy costs. With this latest innovation, “Intel’s strategy is looking better” in networking, he concludes.
The next big factor that may advance Intel’s ambitions is 5G, says Intel’s networking head, Sandra Rivera. The focus of 5G will be less about people and their cellphones, and more about connecting tens of billions of devices with wireless sensors, from energy meters to self-driving cars, a phenomenon known as the Internet of Things that was explored in last week’s column (“The Big Brains Behind Artificial Intelligence,” Aug. 18). The result of IoT, says Rivera, is that “data explodes exponentially” on telco networks. Intel is betting carriers will turn to the more economical alternative of Intel-based servers with networking software in place of dedicated hardware.
ANOTHER FACTOR MAY PLAY TO INTEL’S ADVANTAGE: the need for automation. “As the network expands dramatically” under 5G, “you can no longer have a human being manage all of that,” says Sameh Boujelbene, senior director for networking research firm Dell’Oro Group. “You will move more and more to software-based networks to automate, control, and manage the network,” she says. And those software-based functions may well run on Intel chips.
Intel is partnering with numerous carriers for 5G, including AT&T (T) and Korea’s SK Telecom (017670.Korea). Commercial deployments start in 2019, says Rivera, with a “steep ramp” of the technology in 2020, when the Tokyo Olympics are expected to be a showcase for 5G applications.
Will investors give a $163 billion company the patience they afford a true start-up, and look past its stagnating main lines of business? At least, the networking market could shift the conversation about Intel away from failure and toward opportunity. That can only be good for its struggling stock price.
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