Intel's Results to Provide Clues About Trends in Cloud Services
October 15 2016 - 9:19AM
Dow Jones News
By Don Clark
For decades, Intel Corp. has been a bellwether for computing
trends in homes and offices. The chip giant's latest pronouncements
will be studied for clues about the computing phenomenon known as
the cloud.
The Silicon Valley company, which is scheduled to report
financial results on Tuesday, is banking on stronger hardware
spending by big companies that build massive data centers to run
their own businesses and offer internet-based computing services to
others. Such cloud infrastructure services -- which include
Amazon.com Inc.'s Amazon Web Services, Microsoft Corp.'s Azure and
Google Inc.'s Google Cloud Platform -- are investing heavily in
server systems and other hardware at a time when many other
companies have stopped expanding their computing capacity.
Intel, though best known for PC processors, commands a greater
portion of the market for the more profitable chips used in
servers. The company recently upgraded its forecast for
third-quarter results because of a slight improvement in the
shrinking PC business, but data centers packed with servers are at
the heart of its current growth strategy.
"They've been doing everything they can to shift the narrative,"
said Stacy Rasgon, an analyst at Sanford C. Bernstein.
That narrative, in the short term, is closely linked to server
purchases by companies that offer cloud services. Market
researchers like International Data Corp. have predicted an upswing
driven by such customers in the second half of this year.
Intel's longer-term plans are more nuanced. The company is
increasingly placing microprocessors in other kinds of data-center
gear -- including networking and storage devices -- while angling
to benefit as new kinds of devices get connected to the
internet.
Many of those gadgets won't contain Intel chips, but they are
expected to generate floods of data that will energize demand for
servers, storage and networking. Intel executives envision a new
breed of Intel-powered "gateway" computers in locations like
offices and factories that will sift through data from gadgets and
pass along only essential bits and bytes. Interactions among those
systems, in this scenario, would be coordinated by data-center gear
that also includes Intel chips.
"The network will go through a fundamental transformation," said
Venkata Renduchintala, an Intel president and recent recruit who
oversees many product categories, during an investor presentation
last month. "You'll see the data center continuing to play a role
of much greater orchestration of the overall network."
But there are several countervailing forces. For one thing, many
companies that traditionally bought their own servers -- the
largest segment of that market -- have shifted at least some their
computing chores to cloud infrastructure providers like Amazon Web
Services, or they are considering it. The decline in their spending
could outweigh purchases by the cloud companies, analysts say.
"Enterprises are stopping buying, assessing whether they should
be doing more on-premise development," said Roger Kay, an analyst
at Endpoint Technologies Associates.
Competition, not much of a factor in server chips recently,
could pose future obstacles. Intel's longtime rival Advanced Micro
Devices Inc., which reports financial results Thursday, is renewing
efforts in the field after selling less than 1% of the widely used
x86 server chips popularized by Intel.
Qualcomm Inc. next year should deliver new data-center chips
based on the ARM Technology PLC technology used in mobile phones.
Such chips, analysts say, might not quickly take hold in servers
but could grab a foothold in the networking and storage gear that
Intel is targeting.
For Intel's latest quarter, though, investors are likely to be
fixated on what the company says about growth. Total revenue for
its data-center group in the second quarter grew 5%, while the
company has vowed to grow in double-digit percentages this year.
Hitting that forecast will require more spending on cloud data
centers in the third quarter, Bernstein's Mr. Rasgon said.
At least two other companies may provide relevant signals this
week. International Business Machines Corp., which operates cloud
services along with other technology businesses, reports financial
results Monday. Hewlett Packard Enterprise Co., which sells
Intel-powered servers for such applications, is kicking off an
analyst meeting Tuesday afternoon -- very close to the time Intel
reports third-quarter results.
Write to Don Clark at don.clark@wsj.com
(END) Dow Jones Newswires
October 15, 2016 09:04 ET (13:04 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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