This article will discuss why Verizon's announcement that it has chosen AMD's Sea Micro servers for its next generation of cloud offerings, is significant to the information technology industry in general, and beneficial to AMD long term.
Public cloud services forecast to grow five times that of IT industry
September 3, 2013 - Worldwide spending on public IT cloud services will reach $47.4 billion in 2013 and is expected to be more than $107 billion in 2017, according to a new forecast from International Data Corporation (IDC). Over the 2013-2017 forecast period, public IT cloud services will have a compound annual growth rate (OTCPK:CAGR) of 23.5%, five times that of the IT industry as a whole.
As one of the world's largest communication service providers, Verizon has the cash flow and network understanding, to take market share from current leaders Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN).
The IDC forecast suggests that the next wave of growth in cloud services will be based upon innovation:
"The first wave of cloud services adoption was focused on improving the efficiency of the IT department," said Frank Gens, Senior Vice President and Chief Analyst at IDC. "Over the next several years, the primary driver for cloud adoption will shift from economics to innovation as leading-edge companies invest in cloud services as the foundation for new competitive offerings. The emergence of cloud as the core for new 'business as a service' offerings will accelerate cloud adoption and dramatically raise the cloud model's strategic value beyond CIOs to CXOs of all types.
Clearly, Verizon announcement supports IDC's forecast that the next wave of cloud services offerings will be based upon proprietary options.
SeaMicro's proprietary technology key to next wave in public cloud services growth
SeaMicro invented the micro server market, and continues to lead in the next wave, because their architecture allows greater network flexibility.
Meanwhile, the public cloud services providers will compete in the future based upon innovative deployment options, and not just on price.
Verizon/AMD collaboration akin to Gaming Industry Coup
In a similar fashion to the 2 years that AMD worked with Microsoft and Sony to create new gaming hardware, they collaborated with Verizon over a 2 year period to "invent a set of tech that allowed their software to take unusual advantage of [of SeaMicro]," AMD's server chief Andrew Feldman told The Register.
That Verizon has chosen to bypass traditional server giants International Business Machines (NYSE:IBM), Hewlett-Packard (NYSE:HPQ), Dell (DELL) , etc., and the low-cost servers being used by Amazon and Google, is extremely important, in my opinion.
Just as AMD's leadership in GPUs allowed it to conquer the gamebox industry, it appears that AMD's SeaMicro acquisition is about to begin paying off in the cloud services area.
Verizon's CTO John Considine has the vast resources of a Microsoft or Sony to create proprietary services, that cannot be easily copied, which explains the use of customized components, as stated in this Gigaom article:
Last week, before Verizon CTO John Considine unveiled the company's new Verizon Cloud, he was vague about the hardware underpinnings but did say Verizon built its infrastructure from the ground up. "VMware and EMC and Cisco and HP remain great partners but this is our own design. We did our own work in software-defined networking, in storage, in hypervisors and in orchestration," he said in an interview.
Wintel losses are AMD gains
Large company IT departments have learned that using off-the-shelf proprietary components only cedes power to those vendors, which resulted in the Wintel monopoly that held them hostage for years.
AMD is executing on a long-term strategy to collaborate with large company end users. These collaborations allows for multi-year design wins for AMD, and proprietary offerings from those customers.
As I discussed in this Seeking Alpha article, AMD will continue to use any of its cutting edge hardware inventions, to sell off the shelf products to smaller companies.
While Wall Street believes that the reduced power of Wintel is bad for AMD, I believe the new paradigm of cloud computing favors AMD.
When AMD creates a long-term collaborations based upon its proprietary inventions, Intel and Nvidia (NASDAQ:NVDA) cannot easily steal those customers.
Instead of hundreds of millions of devices all based upon Wintel dominating the landscape, AMD and its collaborators will create a myriad of other proprietary devices and services.
As partially discussed in this Seeking Alpha article , the game box coup and the Verizon deal, are the first examples of why AMD is just beginning to benefit from the new paradigm of cloud based computing.
Disclosure: I am long AMD. 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.