Customers Unwilling To Pay Premium For Intel Servers Flock To AMD

Intel may continue to dominate the desktop, but AMD would have a hard time claiming that its larger rival is stifling its growth in the x86 server market. Thanks to its meteoric growth of its 64-bit Opteron processors, servers based on AMD processors now account for 10 percent of worldwide shipments and nearly 11 percent of revenue for the third quarter of this year, according to a report released by Gartner last week.

Worldwide revenue in the third quarter from AMD servers, primarily 64-bit chips based on the Opteron processor, was $689 million, up from $484 million in the second quarter and more than double for the same period last year, when AMD-based revenue was $245 million, accounting for only 4.3 percent of the x86 market.

In the United States, AMD has fared even better, garnering 15.7 percent of revenue, up from 5.9 percent for the same period last year. With regard to U.S. shipments, AMD accounts for 16.4 percent, more than double last year's 8 percent share. AMD's growth is most pronounced in the domestic four-way market, where it now has 31.6 percent share of revenuesand 38 percent of overall shipments.

"It is rewarding to see that Opteron is being embraced," says Randy Allen, vice president of AMD's server-workstation division, noting that this growth has been steady since the debut of Opteron two-and-a-half years ago. He would not break out how much of that share was based on the company's dual-core Opteron processors, which began shipping back in April, but he indicated that it has gotten a healthy start.

"We are seeing a dramatic transition to dual-core, and we believe it is one factor that has led to our share gains," Allen says.

AMD has enjoyed a six-month lead over Intel in the dual-core segment. Intel launched its first dual core Xeon processors last month.

Gartner analyst Joe Gonzalez says Intel will likely win back much of that share during the next several quarters, but AMD should hold onto a healthy share, given Intel's gains in the 64-bit extensions segment after Opteron got a similar lead out of the gate.

"I expect to see them overtake AMD in shipments very quickly," Gonzalez says. "At the same time, I don't want to detract from AMD. They have gone against an entrenched competitor that almost literally had a monopoly on it, yet they've been able to carve out a pretty decent share."

Indeed, if another survey is a harbinger of things to come, AMD may have more going for it in the server market than historical norms have shown. Hosting provider Rackspace Managed Hosting, which commissioned a survey of 2,111 of its corporate customers, of which more than 15 percent responded, found that 65 percent were not willing to pay a premium for servers with Intel processors, and only 25 percent were only to pay more than 10 percent extra to have their data hosted on an Intel server. The customer sample was evently split in terms of their own usage of server-processor platforms.

Those findings were a surprise to San Antonio, Texas-based Rackspace, which runs 17,000 servers for clients that include EMI Music, Hershey, Miller Brewing and Motorola. Rackspace's infrastructure is two-thirds AMD custom-built systems and one-third Intel-based Dell PowerEdge servers.

"We expected Intel had a better name in the market and that brand name would carry some premium," says Paul Froutan, Rackspace's vice president of product engineering. "This survey tells us that the premium is very low, if any, for the Intel name."

Froutan says AMD's Opteron processors have achieved as much as 60 percent better power utilization over Intel's Xeon processors in its own labs.

"That's very significant for a customer like us," he says, noting for an organization with 10 or 20 servers, it might be less of a factor.

Paul Miller, Hewlett-Packard's vice president of industry-standard servers and blade systems, says he was not surprised by AMD's continued growth.

"Customers are no longer saying, 'Why AMD?' but, 'Why not AMD?' " he says.