IBM Hits Back At Intel With Xilinx Partnership

  • IBM has announced that it will partner with Altera's key rival Xilinx to build CPU/FPGA server processors.
  • IBM has pulled the move just a few months after Intel announced its Altera acquisition for $16.7 billion to integrate its FPGAs into its server processors.
  • Even though the IBM/Xilinx partnership might not necessarily help IBM to recapture the server market share it has lost to its rivals, it will at least prevent the company from falling too far behind Intel.

IBM (NYSE:IBM) core server business has been disintegrating for many quarters, forcing the company to sell its low-end x86 server business to Lenovo in 2013. But this move does not seem to have helped IBM much. IBM’s server revenue declined a jaw-dropping 34.3% Y/Y during the second quarter. In stark contrast, the industry saw revenue grow 7.2%. IBM is the only major server vendor that saw its revenue fall during the period.


During the third quarter, IBM’s server segment fared even worse--down 39% Y/Y to $1.5 billion. Only z Systems mainframe has been growing while all the company’s other server sub-segments, including the much-hyped Power Systems, have been contracting. Power Systems revenue was down 3%. IBM does not disclose revenue for each server sub-segment.

For several years now, servers built on Intel (NASDAQ:INTC) Xeon CPUs have been steadily taking share from IBM's Power line. The shrinking hardware segment now means that it’s no longer one of IBM’s top revenue segment since it accounts for just 7.8% of IBM’s revenue. But this has not stopped IBM from trying to claw back some of the market share it has lost to rivals. Intel is on course to acquire FPGA-maker Altera (NASDAQ:ALTR), with plans to offer integrated CPU/FPGA solutions for workload acceleration, which could potentially make an already bad situation worse for IBM.

But IBM is having none of it. Big Blue has now announced a partnership with Altera's key rival, Xilinx (NASDAQ:XLNX). IBM intends to integrate Xilinx FPGAs into its Power server processors to accelerate workloads such as analytics, high-performance computing, genomics, and machine learning.

OpenPower Gaining Momentum

Although IBM’s server numbers certainly don’t look pretty, there is some light that is beginning to shine at the end of the tunnel. IBM’s OpenPower project has been steadily gaining momentum, which could explain why the revenue contraction in its Power Systems line has slowed down considerably lately. OpenPower is IBM’s brainchild that allows other hardware makers to use its Power architecture in their servers in a bid to lower costs and compete more effectively with Intel’s x86 servers. Tyan, a Taiwan-based manufacturer, has become the first company to deliver OpenPower servers. Meanwhile IBM’s own OpenPower product dubbed Firestone is reportedly on the way.

OpenPower is a radical shift to IBM’s usual modus operandi. IBM has historically kept its Power architecture a closely-guarded secret. But this model has led to high production costs which has limited growth for the Power line. By using the OpenPower model, IBM hopes to spur its hardware partners to produce servers in the sub-$6k range and open up the market for its own servers.

IBM has traditionally used Nvidia’s GPU accelerators in its server processors. But the industry trend has now shifted to using FPGAs as accelerators as cloud computing and the Internet of Things gain momentum. That’s why Intel is buying Altera for $16.7 billion to bring the technology in-house.

Meanwhile Xilinx has already partnered with mobile technology company Qualcomm (NASDAQ:QCOM) which is experimenting with Xilinx FPGAs on its upcoming ARM server chips. IBM’s partnership with Xilinx aims to wrestle some of Intel’s 95% server chip market share.

But that is not going to be easy. Although no performance benchmarks are available yet, IBM might discover, just like AMD (NASDAQ:AMD) did, that beating Intel in the server chip game is not an easy feat to pull off. About a decade ago, AMD had managed to capture as much as 25% of the server processor market by building energy-efficient server processors. But the launch of Intel’s low-power Xeon processors cancelled AMD’s advantage and Intel was able to grab back market share from AMD. IBM’s partnership with Xilinx will help the company avoid falling behind the curve as far as building competitive high-performance servers go. But it will take a lot more than that to bring back  its dying server business to life.

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