Friday, October 7, 2022

How has Qualcomm diversified its strategy – By returning to the data center market?

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According to Bloomberg news, Qualcomm Inc is taking another run at the market for server processors, according to people familiar with its plans, betting it can tap a $28 billion industry and decrease its reliance on smartphones.

The company is seeking customers for a product stemming from last year’s purchase of chip startup Nuvia, according to the people, who asked not to be identified because the discussions are private. Inc.’s AWS business, one of the biggest server chip buyers, has agreed to take a look at Qualcomm’s offerings, they said.Chief Executive Officer Cristiano Amon is trying to turn Qualcomm into a broader provider of semiconductors, rather than just the top maker of smartphone chips. But an earlier push into the server market was abandoned four years ago under his predecessor. At the time, the company was trying to cut costs and placate investors after fending off a hostile takeover by Broadcom Inc.

Is Qualcomm’s return to the data center market a part of its diversification strategy? According to the latest report from Bloomberg, the company seems to be contemplating it. Bloomberg reported on August 18 that Qualcomm, after its US$1.4 billion acquisition of Nuvia last year, has been seeking customers for a product derived from the purchase, with Amazon Web Services (AWS) reportedly interested.

The news comes as a surprise, since Qualcomm announced its divestment from the data center business in 2018, ending its attempt to challenge Intel’s dominance in the sector. “Qualcomm is reducing our investments in the data center business,” said the company back then. Nevertheless, Qualcomm also remained open to the opportunities presented by edge computing and AI inference cloud.

Qualcomm’s data center ambition began in 2012 as the company sought new markets beyond smartphone, planning to leverage the energy-efficient nature of its mobile chips for cloud server applications, catering to cloud service providers looking to reduce costs and find Intel alternatives. In a 2016 interview with The Next Platform, Qualcomm executives observed that cloud players had begun to disrupt the sector by building data center themselves and changing its architecture. In doing so, they changed the rules of game that used to bar new entrants to the data center market. “We are not doing this on our own and showing up to realize it is not the right product for the market,” said Derek Aberle, then-Qualcomm president, who indicated that the company was actively involved with tier-one cloud players to define Qualcomm’s product.

At the end of 2017, Qualcomm proceeded to launch the ARM-based, 10nm Centriq 2400, its first server CPU, and Microsoft was reportedly adopting the product. The timing was inopportune, however. In the same year, AMD also re-entered the server market with its x86-based EPYC processor, making it a serious competitor to Qualcomm.

The following year also saw Qualcomm engulfed by Broadcom’s US$103 billion takeover attempt, in addition to its own failed attempt to acquire NXP. Even though the US government eventually intervened to stop the Broadcom takeover, Qualcomm had to appease its investors by pledging spending cuts. Qualcomm cut its spending by US$1 billion, sacrificing its data center unit in the process. According to Tom’s Hardware, Qualcomm’s server chip design team was reduced to about 50 personnel from its height of 1000 employees.

Following an aborted plan to sell Qualcomm Data Center Technologies to SoftBank and Singapore’s Temasek, the company’s server chip managed to survive in China via a joint venture with China’s Guizhou Province in which the local government had a 55% share. Huaxingtong Semiconductor (HXT), as the joint venture founded in 2016 was called, saw Qualcomm’s Centriq 2400 chip continue in the form of StarDragon 4800. However, the project was short-lived and terminated in April 2019.

When Qualcomm acquired Nuvia, a startup founded by former Apple chip engineers, in 2021, Qualcomm’s CEO Christiano Amon stated that the company had no intention of re-entering the server market, even though Nuvia’s ARM-based Phoenix CPU core was originally designated for server applications. Instead, Amon planned to regear the Phoenix core for Qualcomm’s desktop processor – Snapdragon 8cx Gen 2 – in the company’s plan to take on AMD and Intel’s dominance in Window PCs. Qualcomm stated it would sample the first products carrying the said CPUs this year.

Even though the scale of Qualcomm’s renewed server ambition remains obscure, the gloomy outlook for global PC market could have led Qualcomm to reconsider the server market as a part of its diversification strategy. As IDC indicates, worldwide shipments of traditional PCs declined 15.3% year-on-year in second-quarter 2022, marking the second consecutive quarter of lower shipments after two years of growth. IDC also expects global smartphone shipments to fall 3.5% this year. In July, Qualcomm forecast that the slowdown in global smartphone demand could hit its mobile chipset business, expecting its smartphone sales to fall 5% this year. Competitors like AMD and Intel have also been impacted by falling PC demand.

According to Mercury Research, as of fourth-quarter 2021 Intel still retained its server CPU dominance with its 89% market share, a slight drop from fourth-quarter 2020’s 92.9%. Meanwhile, AMD saw its share rise from fourth-quarter 2020’s 7.1% to fourth-quarter 2021’s 10.7%. In the desktop CPU market, Intel also dominated with a 83.8% share in fourth-quarter 2021, a rise from fourth-quarter 2020’s 80.7%. AMD’s share was 16.2% in fourth-quarter 2021, a fall from fourth-quarter 2020’s 19.3%.

(With Inputs from Digi Times & Bloomberg)


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