Will Intel's New Processor Be a Game-Changer?

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Posting about the semiconductor industry has been a cheerless task lately, so I am finding it satisfying to be writing a positive account of Nehalem, Intel's (INTC) newest microprocessor.

By all accounts a great product, is it significant enough to truly make a difference to Intel or the industry as a whole?

Before we can answer that question, we should present a little background. Nehalem is the codename for the new Intel processor microarchitecture. Nehalem processors use a 45 nm manufacturing method, currently Intel's most advanced geometry though 35 nm is already in the works. What distinguishes Nehalem from its predecessors is that the new chip has a built-in memory controller for each CPU and there are four CPUs per chip. Another major improvement is the replacement of the old front-side bus with QuickPath, a new high-speed interconnect system that routes data between the CPU, memory, graphics controllers, etc.

So much for the geek-speak (yes, I love this stuff). The bottom line is that the outcome of these architectural decisions is blazing speed. Intel is leaving competitors; ie, AMD (AMD), in the dust. The Nehalem chips, now branded as Core-i7 and optimized for single socket systems and dual socket systems, are now the standard against which other PC processors and Windows-based servers will be judged. Various spokespersons at Intel have said that Nehalem represents the biggest performance jump since the introduction of the Pentium Pro back in 1995

This is like a challenge to a lot of the folks who run tech blogs, so there has been a flurry of benchmark testing, and it appears that Intel's claims are accurate. Word is that Intel's partners are reporting performance improved by a factor of two and in some cases as much as three. Taking a shot at Sun (JAVA) and IBM (IBM), Intel further claims that the era of proprietary and RISC/Unix computing is over, declaring that a two socket box running the high end Nehalem processors can easily compete with the IBM Power server and Sun UltraSparc.

In addition, the new chips are far more power efficient than predecessors and competitors, drawing 70 watts less than comparable systems. Where this gets interesting is when you consider the additional performance of the new processors combined with their power efficiency, the performance-per-watt difference is big enough to act as a significant differentiator.

Climbing on the virtualization bandwagon, Intel has included features that are intended to reduce the overhead of running in virtual environments so that performance approaches that of running on native machines.

Intel's various customers are now faced with a situation where they need to immediately incorporate the new Nehalem chips in their products because their competitors certainly will. The speed advantage the chip offers can't be ignored so, in order keep up with their rivals, Dell (DELL), HP (HPQ), Cisco (CSCO) and IBM, for example, will be forced to quickly roll out products with the new processor. Apple (AAPL) already offers a rackmount server utilizing two processors and claiming an 89% improvement in performance-per-watt.

IBM and SUN and the other vendors of Unix-based servers such as H-P will also have to answer Intel's claims that the speed and reliability advantage no longer belongs to Unix.

Interestingly, AMD pioneered certain aspects of the kind of architecture Intel has adopted but AMD is now in the position of having to play catch up.

So, game changer or not?

There are some who say that the raw power of these processors will eventually transform all kinds of computer tasks. What used to take hours can be done in minutes. This means hard things can be done quickly and really difficult things become reasonable to attempt. Since versions of these chips can be used in workstations and PCs, not just servers, we are now going to see a leap of computing power put into the hands of individuals. Where will that take us? Hard to predict but it will no doubt be somewhere no one expected.

As for Intel, it has to be a significant positive. The company, always the major player in the processor market, takes a clear leadership role and the new processor family becomes the flagship product in the Digital Enterprise Group business segment that generates more than half of Intel's revenue. While the Mobility Group has shown greater growth through the surge in notebook and netbook computing, the new Nehalem processor assures Intel that it's bread and butter business segment will maintain its strength.

More to the point, however, will the new processor allow Intel to generate superior growth? That is an important question. Looking at the following chart, it is clear that Intel, despite its strong position in the markets in which it participates, has actually been an under-performer over the last five years.


So Intel currently holds the high ground. Sun Microsystems is staggering, racking up losses and failing to nail down a deal with IBM. AMD is splitting itself up and trying to reduce losses. Dell is also suffering profitability problems. IBM is coasting on its services revenue. H-P seems to be more involved in cost cutting and integrating their EDS acquisition. Intel seems to be the company exhibiting leadership in R&D.

Can this leadership translate into earnings? Introducing this product during a recession implies sales in the near term may not set the world on fire, but as the economy begins to improve and enterprise IT budgets loosen up, Intel is well positioned to grab share from AMD and Sun. Those companies who offer both Windows-based servers and Unix-based servers may see a shift in product mix toward servers with Nehalem processors. This means they could become even better customers of Intel. So the potential for significant earnings growth is there.

With Intel currently under $16, up 30% from its recent lows, and its PE just over 16, it would seem that the company is fairly priced at the moment. The new processor family has the potential to add value to the Intel franchise at a time when it needs a higher-margin driver of sales growth to offset the move toward netbooks.

The contest, then, is well underway and Nehalem might just be the game-changer that Intel needs.

Disclosure: none

Comments

[donzelion:]

Hmmm..."hard things can be done quickly and really difficult things become reasonable to attempt." Such as?

'Hard things' like rendering HD video, which will appeal to a few hundred thousand people? Or what? Running Vista a bit faster? Opening documents and sending emails? It's very hard to see that many applications for this kind of power - at this point. Of course, perhaps someone will provide the new killer app that will drive a whole new universe of growth in the sector...

That said, I see Intel as a long haul investment - the GE of the 21st century (er, that is, GE sans GE Capital). They execute well, they engineer well, they pay a reasonable dividend. For the foreseeable future, there's nobody who can touch them in their main field of competence, and their main field of competence is imminently desirable business to be in.

Downside? Hard to see how they might double in the next three years. After all, just how many computers do you need?

Apr 08 01:12 PM

[coloneldebu...:]

The i7 and it's followers are a game changer? The i7 has been out for nearly six months now, released in November 2008. That's a really really really long time in terms of technology. As an IT hardware manager I haven't seen any change in the game. No one is beating down my door begging for a new computer with an i7. I doubt most of the users in my company have even heard of it.

Plus you need some actual competition for there to be a game in the first place. Right now Intel is the Meadowlark Lemon era Harlem Globetrotters to AMD's Washington Generals.

Apr 08 01:30 PM

[stnickb1:]

We need the speed and efficiency plus green effect. Speed lets you competent tech people give us average non tech americans the glitch free easy use stuff that makes us multitasking, ten things running on the screen functional. This may deliver the dream/lie that was promised years ago of the new Digital way of life. If this can finally do it the 35 - 70 population will buy in with new computers. I am in my fifties and older younger friends family really have not embraced the web 2.0 because it just takes too long or they can't figure it out. When it works they do get excited and then are willing to buy. So 3 cheers go Intel will be watching for entry point to buy stock

Apr 08 01:54 PM

[Chris B:]

donzelion, you almost stumbled upon the reason Intel will continue to underperform.

Will a faster processor make employees more productive in using spreadsheets, email, and word processors? No.

Will they make the internet suddenly faster? No. The vast majority of consumers will still be using cable and phone lines a decade from now.

Will the new processors speed up boot times? Not if the bloated Windows 7 is installed!

Companies and most consumers might as well keep their old computers and save the money. Gamers and server farms might benefit from the speed and power savings, but most businesses and consumers will have to ask what these computers do that a 5 or even a 7 year old system won't do.

What people don't realize about PC's is that they have become appliances, just like dishwashers. Intel's processors have reached market maturity. They are the new Maytag or Whirlpool, not the triple-digit growth stock they were in the 90's.

For an increase in demand for computers/appliances to materialize, existing PC's would have to become obsolete. For that to happen, the following would have to occur:

1) Fiber optic lines installed at most households make existing processors the bottleneck for video, etc.
2) PC based artificial intelligence applications or some other killer app leads the next tech-driven increase in productivity growth for business.
3) Windows continues to bloat and hog more resources, and consumers continue to just buy new computers rather than migrating to Apple or Linux.
4) Hardware failure rates increase dramatically, resulting in more new replacements being bought.

Apr 08 02:29 PM

[BeachRider:]

Raising the capability of the high-end is a good thing for Intel. They will create price pressure on IBM, existence-pressure on SPARC and judgment pressure on HP (for choosing Itanium in the UNIX market).

This isn't widely applicable to home-machines. Perhaps 5% of home computer users will have much use for this. Not trivial, but not a game changer.

These are still IA-32 chips. Acceptance/Understanding of x64 is a problem. Intel must make it clear that they have a long term solution and sever-off Itanium. Then the future will be clear.

Technically the Core i7 at 45 nm is still substantially slower than the Power 6 at 65 nm (core-per-core). Both are available as true quad-core setups, for several months now.

Saving electricity on a by-core basis will always be in SPARC's favor. The just run the thing at low GHz and cram 8-16 cores in each CPU. I am not sure how that translates into server-buy decisions, though.

Apr 08 02:50 PM

[Just Say Whoa!:]

>The bottom line is that the outcome of these architectural decisions is blazing speed.

Unfortunately, the applications have just become slower and more bloated with millions and millions of lines of code.

For example, Internet Explorer 8 is reportedly slower than before.

Windows Vista can also be slower than XP.

So...the real answer is, yes, perhaps the hardware CPU is faster, but you may or may not notice it, depending on which application program you are running on it.

Apr 08 04:36 PM

[Ricard:]

If indeed AMD and Sun aren't able the catch up, this may indeed spell another golden age for INTC processors. Without serious competition, they can then re-charge serious prices. That's fine for me - I own more INTC stock than I do computers and etc.

Apr 08 04:53 PM

[carey_jim:]

The real problem is that the big three operating systems can't take advantage of the power of hardware that has been available for years.

For ten or twenty years it has been possible, for example, to place hundreds of vanilla brand CPU's together in one box with mountains of RAM dedicated to each CPU, but no existing operating systems are able to use this kind of parallel computing arrangement.

Certainly not Apple's Big Cat OS or Microsoft's Fat Couch OS. The versions of Unix known collectively as Linux can't either.

It would be relatively simple to develop an OS that could handle two hundred and fifty CPU's, each CPU capable of running an application with its own dedicated RAM. But putting such capacity on top of Big Cat OS or Fat Couch OS would be virtually impossible.

No one has given much time, to my knowledge, of writing such as operating system because they know it is impossible to lure people away from Apple and Microsoft.

It isn't about hardware. Ultimately, it's about tearing people away from big screen virtual reality and other forms of narcissistic navel gazing, and bringing them back to the hard reality of creating software and new programming languages to more effectively use the hardware that is already there.

After all, the jellyware called the human brain has been shown to be capable of discovering quantum mechanics, relativity theory and the science of heredity. But what do most people use this jellyware for?

The question almost answers itself.

Let us hope there are unknown computer software Einsteins, Heisenbergs and Watson and Cricks using their jellyware to develop the operating systems of the future.

Which is not, of course, to say that Intel has not produced a great new product. It is to say that almost nobody knows what to do with it.

Apr 08 05:12 PM

[Mafeking:]

The performance of the i7 quad processors overlap those of the more familiar Core 2 Quad with performance only better at the high end of the Nehalem range.

The problem is the software. It is very difficult to write software that takes advantage of multiple processors on a single chip. Very little truly multi-threaded software currently exists that can benefit from the newer chips.

As it happens I am writing this on a desktop with an i7 processor - just another good performance desktop.

Will the Nehalem series have good performance: yes.

Will it be a game changer: hello no. Game changes await the smart researchers who can simplify multi-process multi-threaded software.

Apr 08 05:25 PM

[JerseyMike:]

Apple's next OS revision due out this summer - Snow Leopard - is specifically designed to work with multiple processors (they call the technology "grand central").

But, as others have pointed out, the real growth in the PC sector in last year has been in low powered netbooks and not in high end desktops or servers. Thus, I would imagine that the number of Intel Atom processors sold probably far exceeds the number of i7 processors sold during the same period.


On Apr 08 05:12 PM carey_jim wrote:

> The real problem is that the big three operating systems can't take
> advantage of the power of hardware that has been available for years.
>
>
> For ten or twenty years it has been possible, for example, to place
> hundreds of vanilla brand CPU's together in one box with mountains
> of RAM dedicated to each CPU, but no existing operating systems are
> able to use this kind of parallel computing arrangement.

Apr 08 09:14 PM

[orionoir:]

in my experience as a home user, photo / video applications still crave more cpu speed; if you add commonly multitasked apps such as itunes, virus checkers, and tabbed browsers, system response becomes problematic.

the high end pulls the low end with it, if not in lockstep, at least in the long-term. dell's low-end vestro laptop, an intel 1.6ghz core duo, is too slow to run photoshop, let alone msft's moviemaker video editor. as the i7 shifts performance expectations upward, there will be a large cohort of buyers ready to move to a redefined low-end.

game changer? absent a killer app, it's hard to imagine. still, computers process an infinitesimal part of human existence. given sufficient speed and cleverness, we could digitally reproduce consciousness and thus live forever.

Apr 08 10:08 PM

[ECONOMICS 101:]

Good concise article. I guess this is the return of INTC to top position. Thank you.

Apr 09 09:28 AM

[bcncv:]

Chris-
You hit the nail on the head. Although these chips are absolutely faster, they don't make the end users life noticeably different. There might be some value in making virtualized services run faster (I don't know how true that is), but this only affects a small portion of the market.
In addition, a good percentage of gamers are transitioning from PC's to console's. The game quality is comparable, and a console costs a fraction of a new PC.

The article is correct that Intel will keep its lead in the semiconductor space. I just question whether it's a market investors want to be in at all.

Apr 09 01:58 PM

[carey_jim:]

JerseyMike, as you know Apple's 'next OS revision' is just a few bells and whistles added on top of their objective C based FreeBSD Unix engine.

This combination makes Apple into a real competitor for Microsoft (but marketing will have to do the heavy lifting, as usual) except for the fact the objective C, their proprietary programming language is not a mainstream language.

Objective C is a great object oriented programming language and many think it is better than C++ or C# (Microsoft's proprietary language) but it isn't taught in major universities and is not known by many programmers. (Here is a case where simple 'crowd behavior' trumps the underlying value of a programming language.)

It's a very good thing that Apple has made this marriage with Unix but this new development to handle several processors is just a first step. The only impact will be to possibly prod customers to demand more and better multi-processor and multi-process support.

But it isn't really revolutionary to be able to switch between several processors, each with its own section of dedicated RAM. Especially if each CPU handles only one program.

I don't think Seeking Alpha is the place to go into technical details ((I have a background in both hardware and software design) so just let me say that this is a neglected area of computer research, and major advances could bring a huge increase in computing power using only hardware that is available today.

I also have to say that it seems obvious from past history that this kind of research is the kind of thing that governments and universities do best.

Private industry, for example, had no hand in developing the Internet or the programming languages commonly in use today, such as C++, SQL, etc. just as it has had no hand in developing the basic scientific and mathematical knowledge used by businesses to build the technological world around us.

The role of businesses (Thomas Edison, Alexander Graham Bell, Bill Gates, Steve Jobs ................) is to transform this basic research into practical and useful technology.

But 'socialismcantwork' is sure to step in here and give me negative points for saying it (although he never gives any arguments to prove his point.)


On Apr 08 09:14 PM JerseyMike wrote:

> Apple's next OS revision due out this summer - Snow Leopard - is
> specifically designed to work with multiple processors (they call
> the technology "grand central").
>
> But, as others have pointed out, the real growth in the PC sector
> in last year has been in low powered netbooks and not in high end
> desktops or servers. Thus, I would imagine that the number of Intel
> Atom processors sold probably far exceeds the number of i7 processors
> sold during the same period.

Apr 09 05:02 PM

[carey_jim:]

I thought someone might object to my point that government based (university) research is better at making scientific discoveries than free enterprise. (I was taunting the anti 'socialist' crowd for a response.)

So I'll respond to my own post.

It is true that various research departments of large corporations, such as Bell Labs, IBM, Sun and many others have contributed in a major way to theoretical research. Also, many of their employees function as quasi-independent professors of computer science and other sciences.

It is also true that many major universities are beginning to look more like corporations (Harvard, Yale, U.C. Berkeley, etc.)

But I still think I'm right. Bell Labs was, in fact, shut down because it was thought to be, by its parent corporation, too costly even though it produced more innovations than most research universities.

Xerox produced the operating system (based on SmallTalk) that Steve Jobs and Steve Wozniak were accused of stealing to make the first Apple windows system. But the Xerox corporation itself wasn't able to make use of the work of its own research department and so the American judicial system decided against Xerox and for Apple.

What I'm pointing out is that these large research departments are independent of corporate culture and function more as scientific research centers.

When profit motives get in the way we get the situation that we find it the pharmaceutical industry and the food industry and it isn't pretty.

Only the government is capable of getting the profit motive out of scientific research. Even though many corporations can't understand what their research departments are doing and too dumb to take advantage of it anyway, we can't rely on incompetence to insure objectivity.

Let free enterprise develop these ideas but let there be places where people can pursue knowledge for freely too, without bosses telling them where to look and without the need to worry about what the marketing department will say.

Apr 10 12:59 PM