Intel Xeon Chip Upgrades Come as Corporate Spending Improves

During Intel's fourth-quarter earnings call, CEO Paul Otellini says the IT company will upgrade its entire server chip portfolio with 32-nm processors this quarter. The new chips will come as corporate spending, which sharply decreased in 2009 because of the global recession, is expected to improve. Analysts expect businesses to upgrade servers before PCs, and say Intel rival AMD will get a similar boost from the improving enterprise spending.

Intel CEO Paul Otellini, in announcing Intel's soaring fourth-quarter 2009 numbers Jan. 14, gave much of the credit to consumers and the money they spent on PCs in general and laptops in particular.

During his talk with analysts and reporters, Otellini was less ebullient about the corporate space, which he said kept tight controls on IT budgets.

"It was not a robust year in the enterprise," he said.

That is expected to change as the IT industry moves deeper into 2010, and Intel is planning to help fuel that growth. Otellini said Intel is not only preparing for the release of its eight-core "Nehalem EX" Xeon chip for servers with four or more sockets, but also will refresh its entire server chip portfolio with its next-generation 32-nanometer "Westmere" chips within the next three months.

He called 45-nm Nehalem EX the "biggest leap in performance in the history of the Xeon brand," and said the upcoming 32-nm Xeon chips also will offer strong gains in performance and energy efficiency, both of which will be important to enterprises with relaxing budgets as they look to refresh their aging servers.

Otellini said he expects businesses to really look to begin this refresh cycle in the second half of 2010.

Analysts agreed that Intel's timing for the release of Nehalem EX and the 32-nm server chips is good, given the apparent economic rebound in the IT industry.

"Companies that haven't bought in a while are-and probably have been for a while-planning their purchases for this year," John Spooner, an analyst with Technology Business Research, told eWEEK. "So they can essentially put 32-nm Xeon servers in their budgets now, and plan purchases for the rest of the year. Not that this is super-different [from] the usual pattern, but I think this cycle there's a lot of pent-up demand. And the performance that's expected from these chips [has] a lot of companies looking at them as a way to consolidate servers and improve their internal metrics for IT (increase server utilization, get better performance, even low power bills)."

For these new chips, including Nehalem EX, those benefits can be derived from such features as integrated memory controllers and the ability to power down idle cores. The "Westmere" processors will also include an integrated graphic chip with the CPU, and use AES (Advanced Encryption Standard) for faster data encryption and decryption.

During his conference call, Otellini said with corporate spending probably on the upswing as the year progresses, businesses will be faced with the decision of whether to spend on new servers or new clients, particularly given the host of new Core PC processors Intel released earlier in January at the Consumer Electronics Show and Microsoft's release in October of its Windows 7 operating system.

Brian Alexander, an analyst with Raymond James Equity Research, said he expects businesses to opt for new servers first.

"[Intel officials during the call] downplayed the strength of an anticipated corporate PC upgrade cycle, citing procedural issues in testing hardware/software and the decision between refreshing enterprise hardware (servers/storage/networking) or client hardware," James said in a Jan. 15 research note. "Recall that we have continued to believe that enterprise hardware will strengthen before PC upgrade activity accelerates given the higher ROI associated with data center projects, which have been pushed out as a result of the recession."

Spooner, the Technology Business Research analyst, said Intel rival Advanced Micro Devices should get a similar boost in corporate spending as it rolls out new Opteron processors, including its 12-core "Magny-Cours" Opterons due later this quarter.

"I don't think AMD is standing still," Spooner said. "It's going to experience the same phenomenon as Intel, which is an improving economic outlook."