Intel (NASDAQ:INTC) has 94% of the data center server business. 94%! When did all that happen? Apparently when we were not watching, because I don't remember the 10% point or the 25% point, or the 50% point. The other 6% must be some obsolete servers supplied to customers who inadvertently got locked into a dying technology. So, someday we can expect to hear that Intel has 100% of the data center server business, not that it will make much difference.
What is a data center?
A data center is a facility used to house computer systems and associated components, such as telecommunications and storage systems. It generally includes redundant or backup power supplies, redundant data communications connections, environmental controls (e.g., air conditioning, fire suppression) and security devices. Large data centers are industrial scale operations using as much electricity as a small town and sometimes are a significant source of air pollution in the form of diesel exhaust
One thing missing in this definition is that a data center also contains an immense amount of copper cabling that connects these thousands of electronic server systems.
Many people reading this article will freeze up when hearing "data center" or "servers". Don't worry, because a modern data center is just the old familiar air conditioned corporate computer room on steroids, and servers are just specialized computer chips, much like the one in the computer I am typing this on, but with special features for ….umm SERVING a whole bunch of my kind of computers…kinda like a waiter, I guess.
Intel also has 85% of the solid state drive (SSD) business in the data center segment. That is really interesting, because data center SSDs are the most demanding environment for SSDs and require different kinds of SSDs depending on the job they are intended to do. I would hope that no serious reader would ever think that Intel will stop at supplying SSDs only to the data center world.
As I have written before, Intel tends to do the toughest things first under the theory that, "If we can do the hardest things, we should be able to do the easier things…well, easier." Intel is learning all the most varied and demanding applications for SSD, knowing that this knowledge can be applied, eventually, to all SSD applications, even the 300+ million client PCs that are sold every year. Sorry Seagate (NASDAQ:STX) and Western Digital (NYSE:WDC), there is no stopping the SSD tsunami headed your way.
Diane Bryant, Intel Senior Vice President of the Data center Group told us all about data centers in her presentation on Intel investor day. Diane's presentation is 55 minutes long. I have listened to it at least five times. If success in investing in Intel is important to you, you will listen to it as many times as it takes to absorb some of what she said.
So, Intel has 94% of the Server business and 85% of the SSD business in Data Centers. What's next? How about that cabling that gets in the way of everything? Let's look at Intel Silicon Photonics. Silicon Photonics is a way to eliminate much of that wire and cable in a data center and convert it to fiber optics that can carry many signals at once, much faster, at much lower power and longer distances than the copper wires. The Intel device that does this is a CMOS chip that accepts several electrical signals on one end and converts them to light pulses on one fiber optic cable. On the other end another Intel device receives the optical data, decodes it, and converts it to the several electrical signals necessary for the server chips to understand.
This is sheer speculation, but if a server chip costs about $1000, the silicon photonics parts (many of them per board) that go with it on the server board must also cost about $1000 total per server board. That's another $10 billion business for Intel. Diane tells us that revenue for silicon photonics begins "next year", meaning this year.
So, Intel owns the data center server chip business, the data center SSD business, and will soon snuff the copper cable business in favor of silicon photonics driven fiber optic cabling.
There are other interesting pieces of business in data centers such as the software that ties the whole thing together, the "fabric" for the interconnect, switching and networking applications that happen in data centers. All of these are businesses that are being supplied or developed by Intel.
I have often mentioned the possibility of Intel returning to the NAND memory business solely for SSD, to a sometimes skeptical audience. The NAND for the present Intel SSD comes from the Intel/Micron (NASDAQ:MU) joint venture fab in Utah, but at the 50% growth rate for SSD in 2014 mentioned by Ms. Bryant, that source will be tapped out in the near future. Where does Intel get their NAND memory when that fab is tapped out?
A strange little factoid is that the Intel SSDs are considered the most reliable SSDs even though they are using the same NAND parts that Micron uses in their SSD. Intel must have some secret sauce baked into the SSD controller chips.
Stacy Smith also mentions non-volatile memory in a more enthusiastic manner than would be expected beginning at minute 42. He talks about the superior Intel technology, not Intel/Micron technology but Intel technology.
In summary, the Intel data center business thrust is not complete, it might be just beginning. Silicon Photonics is a big opportunity, SSDs are a huge opportunity. A senior VP and an executive VP have applied an unusual amount of emphasis in their discussion of non-volatile memory. These data center businesses are potentially multiples of the much complained about "missed" mobile business.
There is much more to Intel than just PC chips.
Intel is a buy and 2014 is the year.
Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.