Late on Thursday Intel reported its fourth-quarter results and while revenue hit $14.9 billion, up 1%, its shares fell 5%.
Part of the problem is that its fourth-quarter data centre revenue rose 5% to $4.3 billion, which was below Wall Street’s expectations of $4.4bn.
Although this equates to revenue from the segment being $16 billion for 2015, which is an increase of 11% year over year, it suggests that Intel’s journey to the cloud isn’t mapping out as smoothly as it would like it to.
In November, Intel warned in an analyst meeting that a weaker than expected demand from enterprises meant that growth in its data centres wasn’t going to plan. What the company is missing is strong demand from cloud providers if this part of its business is to increase.
One of the challenges is that many of the big cloud players like AWS, Google and Microsoft Azure all build their own data centres but may use Intel’s chips.
While these three players tend to buy Intel’s chips directly, the demand isn’t always there, which can lead to insecurity in whether one of the major lines of revenue will be there.
RBC Capital Markets estimates that in 2015, cloud capital spending grew less than 7% compared with 29% in the previous year. This capital spending is tightly related to whether or not Intel has a successful year.
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For example Intel’s Q4 in 2014 saw data centre revenue up over 35% from the previous year. 2014’s figures show that growth barely dipped below 20%, but in 2015 the highest was around 20% in Q1, with all other quarters below 15% and 10%.
Intel’s cloud play has been to work behind-the-scenes and supply public cloud vendors with both customised processors and virtual machines. However, the ‘Cloud for All initiative’ is part of Intel trying to push clouds into all enterprises through private clouds.
The reason for this is that private clouds customers that run their own data centres, need chips. So Intel can make money from private clouds, although the company has said that these can often be too complicated to install and manage.
Diane Bryant, SVP and GM, Intel data center group, said: "Our goal is to eliminate these impediments and enable the deployment of tens of thousands of new clouds, both private and public."
On the path to simplifying clouds, Intel has positioned itself as one of the key players in the OpenStack community for building open source IaaS clouds, while it is also in Cloud Foundry which works on open source application development platforms.
Intel’s moves in the cloud should be beneficial to itself in the long term, investments in the right places and funding teams at the likes of Rackspace to work on maturing OpenStack all play together for one reason – maturing the technology.
The importance of maturing the technology and making sure that Intel is at the core of it is that it makes it more appealing to enterprises. If the job of maturing the technology is done well then enterprises will buy more of it and boost Intel’s business in the process.
