Cloud, HPC Drive Intel’s Record Datacenter Sales in Q3 

The Data Center and Connected Systems Group at Intel, which makes chips for servers, storage arrays, and network devices, largely made up for declining revenues and profits in the PC business during the chip maker's third quarter.

The growth was driven mostly by sales of server chips into cloud and HPC clusters, but there was also a slight pickup in sales of processors that will end up in traditional enterprise systems.

The datacenter bump was presumably due in large part to the introduction of the "Ivy Bridge-EP" Xeon E5-2600 v2 processors for two-socket servers, which started shipping to server makers in the summer ahead of their formal launch in early September. But Intel did not provide a breakdown of sales by server chip line.

In the quarter, the Data Center Group, as it is still known in financial presentations, posted $2.91 billion in sales, up 12.2 percent compared to the prior year's third quarter. This was a record level of sales for this group for Intel. Operating income for the group rose even faster, up 15.8 percent to $1.39 billion. Stacy Bryant, Intel's CFO, said in his commentary on the quarter that platform volumes in the third quarter in the Data Center Group rose 5 percent and average selling prices were up 8 percent.

In a conference call with Wall Street analysts, CEO Brian Krzanich said that server chip sales into cloud datacenter operators were up 40 percent, and sales of chips that ended up in HPC systems were up 27 percent. Chip sales aimed at storage products were up 20 percent. He added that sales of chips into systems aimed at enterprises were up a bit due to the strength of sales of so-called MP systems, which is short for Multi-Processor and in the Intel lingo means chips designed for machines with four or more processors in a single system image. (Krzanich did not provide actual revenue figures for these segments, as his predecessor, Paul Otellini, did not.) This jump in high-end Xeon processor and chipset sales helped push up those average selling prices in the Data Center Group.

Intel's PC Client Group had a 3.5 percent revenue decline to $8.39 billion and its operating income was off 2.6 percent to $3.26 billion. The PC business still generates a lot of profits for Intel, as you can see,

The company's relatively young software business, by the way, does not. In the quarter, Intel's software and services segment had $621 million in revenues but had an operating loss of $5 million. The Intel Architecture Group, which makes chips for phones, tablets, and embedded devices, had $1.07 billion in sales in Q3, but posted an operating loss of $606 million.

Add it all up and pay income taxes, and Intel had $13.48 billion in sales, up two-tenths of a percent compared to the year-ago period, and net income of $2.95 billion, down three-quarters of a point.

Looking ahead, Bryant said that there was "nice unit growth" in the Data Center Group in the third quarter, and that Intel was expecting it to accelerate in the fourth quarter and at a level that was "significantly above the corporate average." This stands to reason, with the Xeon E5-2600 v2 chips ramping and with the company getting ready to ship fatter Xeon E7 processors aimed at four-socket and eight-socket machines. An Ivy Bridge-EP variant for the four-socket Xeon E5-4600 is also expected at some point, perhaps this year, perhaps early next. Intel has not said when any of these chips will launch, but they could ship to server makers before the year ends and then be formally launched early next year.

Krzanich said on the call that the 14 nanometer process being used to make its next-generation "Broadwell" chips was not yielding as expected, and so Intel is moving production of the Broadwell chips out to the first quarter of 2014. That is a quarter later than expected, and Krzanich said it had to do with fixing defects in the chip, which he characterized as being part of the normal manufacturing process. The issues have been fixed, Krzanich said, but it took time.

This delay on the 14 nanometer process will probably have no effect on the future Xeon server chip roadmaps – with the exception of the low-end Xeon E3 processors for single-socket machines, including microservers. Intel tends to launch Core desktop and Xeon E3 chips at roughly the same time, and this might mean we don't see Broadwell Xeon E3 chips in machines until the middle of 2014 or so. The Xeon E5 and Xeon E7 chips are on their own schedules, as are the Atom chips also aimed at microservers. Next year will be all about "Haswell" Xeon E5 server chips in the middle of the line, possibly next fall, and Ivy Bridge Xeons E7 chips at the high end, which ramp early next year. We will not see Broadwell Xeon E5 server chips until 2015.