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From: Paul H. Christiansen12/3/2017 4:51:52 PM
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The Booming Server Market In The Wake Of Skylake

The slowdown in server sales ahead of Intel’s July launch of the “Skylake” Xeon SP was real, and if the figures from the third quarter of this year are any guide, then it looks like that slump is over. Plenty of customers wanted the shiny new Skylake gear, and we think a fair number of them also wanted to buy older-generation “Broadwell” Xeons and the “Grantley” server platform given the premium that Intel is charging for Skylake processors and their “Purley” platform.

Server makers with older Broadwell machinery in the barn were no doubt happy to oblige customers and clear out the older inventory – a story we keep hearing again and again – as well as sell new Skylake systems. It is a win-win for server makers, and in the short term it is good for Intel, too, at least on paper. If the hyperscalers and cloud builders that are driving the server market are just getting deeper discounts, as we think is probably the case, then what it means is that Intel is shifting the burden of extracting profits to enterprise clients who individually buy far less iron but that collectively still buy more gear than the hyperscalers and cloud builders. This shift would be happening as sales of systems to enterprises is still in a slump and customers are also reeling from higher prices on main memory and flash storage.

In the short run, this situation is tenable, but over the long haul, it will just drive more customers to clouds, not only because enterprises can’t compete on technology and flexibility, but because they cannot compete on price when it comes to building and running their own infrastructure. This, over the long haul, is not something that Intel wants to see. Intel needs tens of millions of companies to still buy servers and tens of thousands of midrange and large enterprises to still buy clusters if it is to retain its profit margins.

This seems increasingly unlikely given the situation and given the improving CPU alternatives from AMD, Cavium, Qualcomm, and IBM. But for now, according to the latest statistics from IDC showing what it thinks happened in the server market in the third quarter, it is all boom town.

In the quarter ended in September, which ended only nine weeks after AMD rolled out the Epyc chips, only six weeks after Intel launched the Skylake Xeons, and only two weeks after IBM started shipping its System z14 mainframes, both the X86 and mainframe parts of the business both skyrocketed after being in the doldrums for several quarters. IDC has restated its numbers for the year-ago period, showing that the original design manufacturers (ODMs) have made more sales than originally anticipated, and even with that restating, IDC believes that server revenues in Q3 2017 rose by an astounding 19.9 percent to just a hair under $17 billion, the highest level for any quarter that we can remember, and shipments rose by 11.1 percent to 2.67 million units, the highest level we can recall as well and besting the 2.6 million units shipped in the fourth quarter of 2015 when the “Haswell” Xeons were selling like hotcakes despite the impending Broadwell launch the following March.

Sometimes, the hyperscalers and cloud builders can wait, and sometimes they cannot.

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