Intel and Alibaba Team Up in the AI, IoT, and Cloud Markets

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Intel (NASDAQ: INTC) and Alibaba (NYSE: BABA) recently announced several major partnerships in the AI, IoT (Internet of Things), and cloud markets at the Alibaba Yunqi Conference 2018 in Hangzhou, China.

The two companies introduced the Joint Edge Computing Platform, which merges Intel's software, hardware, and AI technologies with Alibaba's Cloud IoT products. That platform will place computer vision and AI tools at the network edge (the entry points into a company or service provider's core network), and convert the accumulated data into business insights. The open architecture platform can be customized for a wide range of markets, including the industrial manufacturing, smart building, and smart city markets.

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Intel and Alibaba will also form the new Aspara Stack Industry Alliance for promoting the Aspara Stack, a cloud service stack that runs big data tools, middleware, security software, and an IaaS (infrastructure as a service) platform on the same platform as the Alibaba Cloud. The alliance will focus on building hybrid cloud solutions, particularly for small-to-medium-sized businesses.

Intel is also developing technologies for the OBS Cloud, a cloud broadcasting platform that Alibaba is developing for the Olympic Games. Alibaba will also test Intel's new Xeon Scalable CPUs and its Optane DC persistent memory during its upcoming "Singles Day" shopping festival on Nov. 11.

Finally, the two companies will jointly test "vehicle to everything" technologies for connected and driverless vehicles.

How this partnership helps Intel

Intel splits its business into two main segments: PC-centric business, which faces slower growth in a commoditized market, and data-centric business -- including data center CPUs, IoT chips, non-volatile memory chips, and programmable chips -- which generate much stronger growth. Here's how those businesses fared last quarter.

Business Segment

Q2 2018 Revenue

YOY Growth

PC-centric

- Client Computing

$8.7 billion

6%

Data-centric

- Data center

$5.5 billion

27%

- IoT

$880 million

22%

- Memory

$1.1 billion

23%

- Programmable

$517 million

18%

Intel's Client Computing Group will likely remain under pressure for the foreseeable future due to tougher competition from AMD (NASDAQ: AMD) and the slow growth of the PC market. Intel also faces an ongoing shortage of 14nm CPUs, which will impact its laptop, desktop, and server businesses as AMD's market share climbs.

Therefore, the logical thing for Intel to do is expand its presence across data-centric businesses that tether devices back to its Xeon-powered data centers. Alibaba is China's top cloud platform provider and the fourth-largest cloud platform provider in the world, so it's an ideal partner for Intel's ongoing expansion into the AI, cloud, and IoT markets.

Working with Alibaba would also likely strengthen Intel's relationship with the Chinese government, which was slightly frayed after US regulators blocked sales of certain Intel chips to Chinese supercomputer centers in 2015. The Chinese government's "Made in China 2025" plan also aims to significantly reduce the country's dependence on foreign tech companies like Intel.

Alibaba also sells IoT devices like smart speakers, and offers specific cloud services for the automotive, smart housing, and smart hardware markets. The computer vision and driverless car markets are particularly important for Intel, which previously acquired computer vision chipmaker Movidius and ADAS (advanced driver-assistance system) maker Mobileye. Intel, Mobileye, BMW, and Fiat Chrysler are currently co-developing a new driverless platform, so gaining Alibaba's insights into the driverless market could give that effort a shot in the arm.

How this partnership helps Alibaba

Alibaba is the biggest e-commerce player in China, and it's wisely mimicking Amazon and supporting its lower-margin marketplace business with its higher-margin cloud business.

Last quarter Alibaba's cloud computing revenues rose 93% annually to 4.7 billion RMB ($710 million), or 6% of its top line. That percentage might seem low, but the unit's growth easily outpaced the growth of its three other businesses (core commerce, digital media & entertainment, and innovation & other).

Alibaba attributed its cloud growth to a revenue mix that leaned toward higher value-added products and services, as well as robust growth in paying customers. It also mainly focused on expanding Alibaba Cloud's analytics, AI, security, and IoT applications during the quarter, and introduced new migration tools -- like Lightning Cube, which lets enterprise customers migrate their on-premise data to the public cloud. In that context, partnering up with Intel, the biggest data center chipmaker in the world, makes perfect sense.

Is this a win-win partnership?

Intel and Alibaba can clearly help each other with this sweeping partnership across the AI, IoT, and cloud markets. However, it probably can't address the biggest concerns about both companies.

Intel still faces tough competition from AMD and a chip shortage, while Alibaba is weighed down by trade war concerns and the abrupt retirement of its co-founder and executive chairman, Jack Ma. Therefore, this partnership is a positive development, but it probably won't move the needle for either company anytime soon.

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