Qualcomm Inc.QCOM , the market leader in mobile chipsets, is the latest entrant in the server market, an area presently dominated by Intel Corp. INTC . The company has unveiled a 'Server Development Platform' to start testing its ARM-based chipset in a number of data centers across the globe, powered by a pre-production 24 core ARM-based custom CPU. Information related to the product launch was not disclosed by the company.
Aim to Diversify
For long, Qualcomm has operated as the undisputed leader in the mobile chipset space. However, in recent times, it faces challenges from low-cost chip manufacturers like MediaTek and Rockchip as well as handset manufacturers' SoC (System on Chip) projects such as Exynos by Samsung etc. Moreover, in a bid to cut costs and improve margins, an increasing number of handset manufacturers like Sony Corporation, Xiaomi and the likes are adopting the SoCs made by these low cost producers. Facing a threat in this market, Qualcomm's need to expand in other areas is thus natural. The company recently collaborated with Xilinx and Mellanox in order to prepare itself for the server market.
Intel commands 95% of the server market with its Xeon and energy efficient Avoton x86 processors as its most profitable business. As cloud computing grows bigger, more firms will need to expand their server infrastructure to cater to increased demand. However, with several firms foraying into the data center business, the industry stands the risk of narrow margins. This is where Qualcomm seeks to enter to grab the untapped market opportunity with its energy efficient ARM-based chipset.
In general, ARM-based processors are more energy efficient and lower priced compared to Intel-based processors. This can help data center firms with limited budgets to operate at low costs. Moreover, Qualcomm's entry into this field will challenge Intel's monopoly over the market, allowing fair prices to prevail. This would help the data center industry in general. Software giants with need of large-scale servers like Facebook Inc. FB , Apple Inc. AAPL and Alphabet Inc. may also benefit significantly from this.
The Bottom Line
Qualcomm's foray into the server market can be deemed a healthy move for the industry. However, one must note that firms like AMD, AppliedMicro and Cavium have also tried to challenge Intel in the past with ARM-based processors, but have failed miserably. Moreover, for the already existing cloud operators, switching to another system could be complicated. On the brighter side, Qualcomm is an experienced player in the ARM business and has sufficient resources for R&D. The company is confident of the benefits of the ARM architecture and is hopeful of catering to the needs of the ever-growing data center industry in the near future.
Qualcomm Inc. currently carries a Zacks Rank #3 (Hold).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.