OEMs Between a Rack & a Hard Place

Look around at any large datacenter, and you're likely to see hundreds, even thousands of X86-based servers from big-name OEMs, including Hewlett-Packard and Dell. In fact, with the PC market falling apart, these OEMs, as well as Intel itself, are looking to the server market as a rare bright spot.

They shouldn't count on it. Several trends are converging to create an opportunity for non-Intel-based servers built by original design manufacturers (ODMs) to displace the X86 platform in large server farms.

Large Internet companies such as Google and Facebook have hired ODM companies like the Taiwan-based Quanta to custom design and build their servers, cutting out the OEM. In 2011, Facebook launched the Open Compute Project (OCP), which is developing infrastructure equipment based on open-source software and hardware with the goal of increasing the efficiency of datacenters. Specifically, the project is developing standard modular designs that can be customized for specific workloads. According to DigiTimes, ODMs already design and build all of Google's servers and at least 30 percent of Amazon's. (The ODMs are hungry for this business, as their traditional laptop business is disappearing. See As PC Market Shrinks, ODMs Seek Greener Pastures: Server Farms)

“Some of these datacenter guys are saying, 'Why do I need to include a middleman if I can go direct to an ODM?' There's a whole new business model that's emerging from this huge datacenter build-out,” said Craig Stice, senior principal analyst of compute platforms at IHS. “The opportunity for new players to get into that market is tremendous.”

In an interview last spring, Mike Yang, vice president and general manager of the cloud business unit at Quanta Computer, said that the big datacenter operators — he specifically cited Facebook and Rackspace Hosting — approached Quanta to design servers that specifically fit their workloads. “Quanta did not go looking for this,” he told The Register. Yang also said that Quanta shipped 1.2 million server nodes in 2012, 19 percent more than in 2011.

In designing their own servers, big Internet companies want to use the lowest-power microprocessors they can. That could mean broad adoption of ARM processors, which already own the smartphone and tablet market because of their low power. The company hasn't made much of a dent in servers yet, primarily because it had no 64-bit microprocessor. But that changed last fall when the company introduced its A50 product. According to ARM, at least 15 companies have licensed the 64-bit design, including Advanced Micro Devices, Calxeda (a startup partially funded by ARM), Samsung, LG Electronics, Nvidia, and Applied Micro.

Although ARM concedes that the dominance of the X86 architecture is a formidable barrier in the enterprise, it argues large datacenters are already using Linux and open-source software, which opens the door for its chips. “Open-source has been a game-changer. It's presenting a real disruption in terms of equipment choices for infrastructure,” Lakshmi Mandyam, director of server systems and ecosystems at ARM, told me last spring.

Server OEMs are fighting back. In May, Dell started limited distribution of its ARM-based “Copper” servers, designed specifically for big datacenters.

Meanwhile, HP has been promoting its Project Moonshot, which is developing low-power, low-cost servers that can be customized for particular applications. Several big Internet companies are reportedly interested in Moonshot servers. There have been rumors that Apple is looking into using Moonshot servers for iTunes. In August, Chili's largest IT services provider, Synapsis, said it was deploying Moonshot servers into its datacenter infrastructure. Although Moonshot servers are currently shipping with Intel Atom processors, the project is designed to use any of a variety of processers, including ARM.

It may take several years, but in the future you may not find many name-brand, X86-based servers in a big datacenter. With direct ODMs sales growing, and alternatives to the X86 architecture starting to take hold, traditional OEMs may see their market slip away.

10 comments on “OEMs Between a Rack & a Hard Place

  1. Tam Harbert
    September 5, 2013

    Ha! Great comment, Rich. How long do you expect that to be? How long will you be holding your breath?

  2. Ariella
    September 8, 2013

    @Rich well, you can hedge your bets by moving some of your operations to the cloud now. Then if you need to do a complete shift over, you won't be starting from zero.

  3. SP
    September 8, 2013

    This is going to be a game changers.customizing data servers is a big thing.

  4. Ariella
    September 8, 2013

    @Rich well, that's one possible motivation, keeping up one's social standing —  if not one's IT standing.

  5. t.alex
    September 9, 2013

    This is a very promising battlefield especially with the exponential growing demand of data and web service for web and mobile applications. 

    A question: what makes a good server node?

  6. Hailey Lynne McKeefry
    September 10, 2013

    @Rich i've been watching HP for decades and they seem to do a pretty good job of rolling with the punches. I suspect they'll hang in a bit longer.

  7. Hailey Lynne McKeefry
    September 10, 2013

    @Rich, with the way the pendulum swings, it may be that you could position yourself as an early adopter of brick and mortar hardware in anticipation of a swing back int that direction.

  8. Tam Harbert
    September 12, 2013

    Interesting that HP just got dropped from the Dow Industrial Average.


    Also, regarding automating data centers, I just read that some companies are exploring robots to tend to data center operations – getting rid of people altogether!

  9. Hailey Lynne McKeefry
    September 12, 2013

    @Tam, I understand Alcoa and Bank of America were also dropped. The New York Times Reported:

    The decision to remove the three companies was prompted by their sagging stock prices and the index committee's desire to diversify the mix of companies represented, according to S.&.P. Dow Jones Indices, the company that operates the index.


    It's a pretty astonishing move.

  10. Hailey Lynne McKeefry
    September 12, 2013

    @Tam, last year, Foxconn (the Chinese electronics manufacturer) was all over the news with robots replacing humans.

    Here's an aritcle on it: Foxconn Receives 10000 Robots to Replace Human Factory Workers .

    I wonder how it's working out for them…

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