Should Intel Be Scared of AMD's Latest Project?

By Harsh Chauhan Markets Fool.com

Advanced Micro Devices (NASDAQ: AMD) is trying to take the game to Intel (NASDAQ: INTC) in server chips with its Naples platform. However, this is easier said than done as Intel owns the server-chip market hands down with a market share of over 90%. In fact, its dominance in this market is so absolute that the chip giant's products accounted for 99.3% of server chip shipments in the third quarter of 2016.

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AMD, therefore, needed to come up with a game-changing product before even thinking of shaking Intel's vice-like grip over this market. But it believes that its Naples high-performance server processor is capable enough to unsettle the market leader.

AMD takes Intel head-on

AMD previewed its Naples server processor in the first week of March. It showed a product packed with high-end specs to gain a performance advantage over Intel. The company claims that the Naples architecture has 45% more cores and 122% more bandwidth memory than its competitor.

Image source: AMD.

This competitor is none other than Intel, and AMD made that clear by demonstrating the capabilities of its platform against Intel's fastest server offering, a 2-socket Xeon chip, in a number of scenarios involving seismic analysis that's used to locate natural-resource deposits. Not surprisingly, AMD Naples was the faster chip in all the scenarios.

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As it turns out, AMD Naples can process a workload two times faster than the Intel Xeon when both are running the same number of cores and identical memory bandwidth. The performance gain jumps to 2.5 times when Naples runs more cores and a higher memory bandwidth.

AMD's strategy of bringing a more powerful chip indicates that it could do better on the performance front, though we would have to wait for the actual results as Naples will be launched in the second quarter. This is why investors should take the faster benchmark performance with a grain of salt until and unless independent tests establish Naples' supremacy over Intel's product.

Why isAMD going against Intel in servers?

AMD has a pretty solid reason for going against Intel to tap the server-chip market with a solution that has superior specs. The global market for data-center servers could grow at an annual pace of 4.89% until 2021, according to Technavio's Data Center Server Market report. This should create a stronger demand for server chips as they play a mission-critical role of enabling fast data transfer over the network in data centers.

Now, an explosion of data will drive data-center workloads higher. The Cisco Global Cloud Index projects that traffic related to cloud data centers will jump a whopping 262% in 2020 from 2015 levels, with 92% of the workload being processed in the cloud. This is where AMD's Naples will come into play, as it seems capable of handling more workload due to higher specifications if the benchmarks are taken at face value.

What's more, modular data centers can also use AMD's server chips to tackle the growing workload as they provide incremental capacity to the existing infrastructure, apart from being used in remote areas. This could be a big deal for AMD as Markets and Markets expects the modular data-center infrastructure market to grow threefold by the end of the decade.

AMD, however, is not going to have a free run given Intel's near-monopoly in this space, as the latter won't wait for its rivals to eat into its market share. Additionally, Intel's response to AMD's potential threat is yet to come, which could make the game interesting if the company comes out with a more powerful offering.

But Intel needs to be on its toes because the high-performance Naples platform could help AMD carve out a small piece of the server-chip market for itself as it solves the problem of greater workloads in data centers.

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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool has a disclosure policy.