Insights into the State of the Chip Market in 2017

Insights into the State of the Chip Market in 2017

By Sofiane Boukhalfa

Many people still associate chip manufacturers with pre-built desktop PCs. However, those days are long gone. As Dave Stevenson of Tech Advisor recently put it:

“The pre-built desktop PC is all but a dead man walking: in 2013 the market collapsed with desktop sales falling 9.8 percent globally. In emerging markets the story was even worse: a fall of 11.3 percent as users sought smaller, cheaper, less-power hungry devices.In 2014, there was a bit of a boost as businesses replaced PCs when support for Windows XP ended, but in 2015 shipments again fell. An increase in Windows tablets and hybrids – 2-in-1 laptop / tablets – meant that in 2016 overall sales were only in moderate decline.”

Who Are the Big Players in the Chip Market Now?

A lack of flexibility on the part of big chip makers like Intel and AMD, who had bright futures in the mid 2000s, has recently paved the way for other players to take advantage of the explosive growth in this sector. Notably, ARM, VIA, and Qualcomm, among others, are making large inroads into dominating this market.

To reverse the trend, both Intel and ARM have geared up for 2017 to make it an explosive year. Intel is on its seventh generation of core processors – codenamed Kaby Lake, which provides enough flexibility to be used in a wide range of devices, including  desktops, laptops, tablets, 2-in-1s and servers. AMD is exciting consumers (and targeting the power hungry PC gaming crowd) with their Ryzen offering, with chips that are overclockable and that finally compete with Intel’s chip numbers.

AMD plans on using the architecture from these chips to compete with Intel in the data center space, a large market that Intel has dominated up until now (having 95-99% of the market). The New “Naples” chip has so far demonstrated outstanding results:

“AMD found its chip was two and a half times faster completing the task than Intel. And quadrupling the data analysis to a four billion point grid, Intel’s Xeon processor didn’t even have enough memory to load the results, while AMD finished the task in 54 seconds.”

Intel Is Facing Major Competition

The new competition should bring innovation back into a $50bn server market that has stagnated under Intel’s dominance and virtual monopoly: “We have seen incredible innovation in software over the last 10 or 15 years,” Norrod said. “That innovation hasn’t run down to the server… The fundamental architecture of the server is about the same as it was for the last 10 years. There’s been a few improvements, but it hasn’t fundamentally changed.”

With this competition coming from large players, AMD’s execution will be critical in their battle against giants – AMD’s revenue was at $1.3bn in Q3 2016 against Intel’s $15.8bn, and the economies of scale will favor Intel unless AMD can out-innovate the giant. With additional competition in both the PC gaming and the data center server market coming from NVIDIA and Qualcomm, the development of new chips that can execute and process more data, or that can better fit the prevalent mobile and machine learning applications that will drive growth in this market, will be critical to continued relevance in the market.

Intel is facing competition in its cloud sensing offerings as well. Microsoft’s recent partnership with Qualcomm to integrate server chips in Microsoft’s Azure cloud service threatens Intel’s leading position in cloud service until now. The chips are based on ARM architectures, and, according to Qualcomm, should execute critical data processing tasks critical in cloud services more efficiently than Intel’s chips. Microsoft believes in this direction: they have released a version of its Windows Server software that is compatible with these chips, as well as others from a smaller manufacturer, Cavium. This comes on top of existing partnerships between Microsoft and NVIDIA for artificial intelligence tasks.

The battle in these markets will be fierce, and only time (and performance tests) will tell who will win in these attractive, growing markets.

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