AMD Launches Fight Against Intel in Lucrative Server-Chip Market

By Ted Greenwald Features Dow Jones Newswires

Advanced Micro Devices Inc. began selling a new generation of chips for the servers that drive computing in data centers, challenging Intel Corp. in that high-margin market for the first time in years.

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AMD on Tuesday introduced the first four of nine chips dubbed Epyc that it claims offer higher performance at lower prices than comparable Intel chips currently on the market. Intel has said it will refresh its server processors over the summer.

The Epyc line reintroduces competition to a high-margin arena that Intel lately has had to itself. Intel holds nearly 100% share of the $16.5 billion market for server chips of the most popular type known as x86, according to Mercury Research. That dominance helped the chip giant keep prices high and achieve a gross margin -- a key measure of profitability -- of 61% in 2016, compared with 23% for AMD.

Other chip makers also are challenging Intel in servers. Qualcomm Inc. and Cavium Inc. in March demonstrated chips running Microsoft Corp.'s Windows Server operating system -- an Intel staple -- based on technology from ARM Holdings, a division of SoftBank Group Corp.

International Business Machines Corp. has said it would ship new server chips based on its own designs in the second half of the year.

AMD's last entry in the server-chip market came in 2013, and since then, its share has dwindled to less than 1%, according to Mercury Research.

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AMD's share price rose sharply starting last year on optimism that it was regaining competitive clout under Chief Executive Lisa Su, who took over in 2014. This spring AMD debuted its Ryzen chips for personal computers, which scored well in independent tests. That boosted anticipation of Epyc, which is based on the same core design.

AMD in the past has introduced competitive products but failed to follow through with ongoing releases to sustain its momentum. The company at a recent meeting with analysts assured them that it has a long-term road map for products this time.

Ms. Su said in an interview that, despite substantial investments in PC processors and graphics chips, "the single largest bet for the company is in the data center." Her goal is to lift AMD's server-chip market share to double digits "in a couple of years," she said.

Patrick Moorhead, an analyst with market-research firm Moor Insights & Strategy, said hitting that goal would require AMD to execute its plan flawlessly. Moreover, "Intel will be relentless in clawing back any lost territory," he said, and he expects any damage to Intel to be limited because it has diversified into areas like server storage, memory, and networking.

Lisa Spelman, general manager of Intel's Xeon server-chip line, expressed confidence its products, including its forthcoming server chips, but said that "Intel takes all competitors seriously."

AMD at its Tuesday launch event in Austin, Texas, showed Epyc-based systems from several major server vendors including Dell Technologies Inc., Hewlett Packard Enterprise Co., and Lenovo Group Ltd., and announced that the chips were being used by major cloud-computing providers.

AMD touted the line's performance and pricing, but also features intended to make it more economical in data-center systems. Each chip can interact more readily with memory and ancillary equipment like graphics processors, AMD said, allowing a single Epyc to do work that would require two Intel server chips. Slimming servers from two to one chip could produce a 20% saving in total cost, AMD said.

"I think this is AMD's strongest suit -- and harder for Intel to defend against because it would require an architectural shift," Mr. Moorhead said.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

June 20, 2017 16:14 ET (20:14 GMT)