INTC Intel Corporation

By Ted Greenwald 

Intel Corp. on Tuesday brought to market a new generation of chips used in the servers that run data centers, firing back at competitors who lately have moved to challenge its hegemony in its most profitable market.

The rollout of the Xeon Scalable Family, an updated line of 58 processors priced from roughly $200 to $10,000 each, highlighted Intel's ambition to maintain its hold over all segments of the data center market.

Intel makes most of its revenue on processors for personal computers, but the powerful server chips bring higher prices and profit margins. The server-chip division reported an operating-profit margin of 44% in fiscal 2016 compared with 32% in the segment that sells PC chips.

The server business has become more strategic lately as sales of personal computers have plateaued in recent years.

Intel holds nearly 100% of the $16.5 billion global market for server chips that run the software instructions called x86 that form the foundation of nearly all commercial software, according to Mercury Research.

But Intel's server business shows signs of contracting. Although the chip giant has said it expects double-digit revenue growth in its data-center division in coming years, half of that growth will come not from chips but from ancillary products like storage and networking, according to Bernstein Research analyst Stacy Rasgon. In addition, Intel has said that profit margins in its data center segment would narrow as that business absorbs more of the costs of developing new manufacturing methods.

Meanwhile, the server sector has attracted a raft of rivals. Advanced Micro Devices Inc. in June started shipping its Epyc line of server chips aimed squarely at the lower-priced half of Intel's offerings. Those products, AMD's first entry into the data-center market since 2013, are giving server makers a welcome alternative for Intel's products. However, any impact on Intel won't become clear for some time.

Qualcomm Inc. and Cavium Inc. in March demonstrated chips running Microsoft Corp.'s Windows Server operating system based on technology from ARM Holdings, a division of SoftBank Group Corp. Microsoft has said it expects to use such chips in its Azure cloud service. International Business Machines Corp. has announced new server chips expected later this year.

And the boom in artificial intelligence has spurred sales of graphics processors made by Nvidia Corp., which has overshadowed Intel in the training phase of machine learning.

Intel responded to the newly competitive environment with a New York launch event Tuesday where it touted partnerships with prominent software and hardware vendors, endorsements from Amazon.com Inc. and Alphabet Inc.'s Google -- an early Xeon Scalable Family customer -- and boasts of its central role in three systems that are candidates for an annual list of top 500 supercomputers.

Spanning a range of uses and cost-per-performance characteristics, the new product line is intended to encourage customers to move into higher-price products, the company said. Moreover, it is tightly coupled to Intel memory, data storage, networking, and accelerator products intended to win the company a larger portion of data-center budgets.

Intel claimed that the top-of-the-line Xeon Scalable Family unit delivers nearly two-thirds higher performance, on average, than the company's previous most-powerful server processor. It presented dozens of what Intel called "world record" scores on performance tests on various applications.

Industry watchers tend to withhold judgment about performance until independent test results become available and generally agree that performance is only one of many factors crucial to market success.

"Anyone can put together a [processor] that will look good on paper from a feature-comparison standpoint," said Lisa Spelman, Intel's VP of data center marketing. But it is harder to build "a well balanced system that can use the highest capacity of every feature it has," she said.

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

(END) Dow Jones Newswires

July 11, 2017 12:29 ET (16:29 GMT)

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