Shares of Arm Holdings(NASDAQ: ARM) have given up most of their IPO gains as investors cool on the company's long-term prospects. While Arm-based chips are dominant in the smartphone, consumer electronics, and embedded markets, Arm's growth will need to be driven by markets where the company has less of a presence.
Breaking into the cloud
The cloud data center is one such market. The effort to bring Arm-based processors to the data center has been ongoing for a very long time, and progress has been slow. Qualcomm, for example, tried and failed with its own line of Arm-based server chips, abandoning the effort in 2018. The data center market is dominated by x86 processors from Intel(NASDAQ: INTC) and AMD(NASDAQ: AMD), and breaking that stranglehold won't be easy.
Still, some progress has been made in recent years. Arm now claims to hold a 10.1% share of the cloud computing market, although that's primarily due to Amazon and its increasing use of homegrown Arm chips. According to TrendForce, Amazon Web Services (AWS) was using its custom Graviton chips in 15% of all server deployments in 2021.
Start-up Ampere is also making waves with its Arm-based server central processing units (CPUs). Ampere sells chips that scale up to 192 cores, ideal for cloud workloads that benefit from a large number of highly efficient cores. Notably, database giant Oracle has ported its flagship database software to run on Arm-based chips and has launched a cloud database service that's powered by Ampere's processers.
For a cloud computing provider, offering instances backed by extremely dense, extremely efficient processors makes a lot of sense. Cloud workloads, like standard web servers that aren't doing much number crunching on their own, won't benefit much from faster CPU cores. But by packing a huge number of such workloads onto a single server, the cloud provider can offer lower-cost services and save customers money compared to running higher-powered servers.
Intel is fighting back
Intel's lineup of server CPUs today largely focuses on power rather than efficiency and core density. The company's latest Sapphire Rapids chips only go up to 60 cores, less than one-third of what Ampere offers. Those cores are powerful, but raw power isn't beneficial for every type of workload.
While Intel will continue to sell high-powered server CPUs, with Emerald Rapids coming in December and Granite Rapids slated for next year, the company will also launch a brand-new family of server CPUs aimed squarely at the cloud computing market. Sierra Forest will use Intel's E-cores, which are less powerful but more efficient than the P-cores used in the mainline server CPUs.
We already knew that there would be a 144-core Sierra Forest model available when the family launches in 2024. At Intel's Innovation 2023 conference, the company unveiled a new Sierra Forest chip that will sport a whopping 288 cores. Sierra Forest is built with a tile-based architecture, so the 288-core chip takes two 144-core tiles and stitches them together.
Like Ampere's processors, Sierra Forest's cores are single-threaded, so the number of threads equals the number of cores. AMD has taken a different approach with its Bergamo chips, which feature up to 128 cores and 256 threads. Bergamo is already on the market, so Intel will be playing catch-up when Sierra Forest launches next year.
A tough road for Arm
Intel and AMD aren't going to let Arm snatch up the market for dense, efficient server chips. AMD already has a contender, and Intel is going big with Sierra Forest next year. Intel's manufacturing investments will help the cause; Sierra Forest will be built on Intel 3, which is the company's 5nm-class process. Clearwater Forest, the follow-up to Sierra Forest that's scheduled for 2025, will jump to the Intel 18A process, which the company expects to surpass anything offered by rivals.
Arm isn't going to dominate the data center market like it's dominated the smartphone market. While there's room for Arm to pick up market share, particularly among cloud giants designing their own chips, the incumbents are going to put up one heck of a fight.
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