Microsoft Corp. is committing to use chips based on ARM Holdings Plc technology in the machines that run its cloud services, potentially imperiling Intel Corp.’s longtime dominance in the profitable market for data-center processors.Microsoft has developed a version of its Windows operating system for servers using ARM processors, working with Qualcomm Inc. and Cavium Inc. The software maker is now testing these chips for tasks like search, storage, machine learning and big data, said Jason Zander, vice president of Microsoft's Azure cloud division. The company isn’t yet running the processors -- known for being more power-efficient and offering more choice in vendors -- in any customer-facing networks, and wouldn't specify how widespread they eventually will be.
"It's not deployed into production yet, but that is the next logical step," Zander said in an interview. "This is a significant commitment on behalf of Microsoft. We wouldn't even bring something to a conference if we didn't think this was a committed project and something that's part of our road map."
Microsoft is planning to incorporate the ARM chips as it develops a new cloud server design, which it will discuss Wednesday at the Open Compute Project Summit in Santa Clara, California. The company is announcing new partners and components for the design, first unveiled last year, as it moves closer to putting the machines into its own data centers later this year. Because the design is open-source, meaning it's freely available to be used and customized, other companies are also likely to use variations.
Both the server design, called Project Olympus, and Microsoft’s work with ARM-based processors reflect the software maker's push to use hardware innovations to cut costs, boost flexibility and stay competitive with Amazon.com Inc. and Alphabet Inc.'s Google, which also provide computing power, software and storage via the internet. While large cloud companies have moved toward greater use of unbranded servers, storage and networking gear, Intel chips have remained one of the sole big-name products widely in use. Microsoft’s work with ARM, in progress for several years, could pave the way for a real challenge to Intel, which controls more than 99 percent of the market for server chips.
While Intel is among companies making components to work with the Project Olympus design, ARM-chip makers such as Qualcomm and Cavium are also in the running, increasing the chance that other server customers will begin to use these processors. ARM, which licenses its chip designs to manufacturers, is owned by Japan's Softbank Group Corp.
Any challenge to Intel's dominance in server chips is a threat to its most profitable business and main revenue driver as demand for PC processors continues to shrink. The company's Data Center Group turned $17.2 billion of sales into $7.5 billion of operating profit in 2016, and Intel has been running ads that say,"98 percent of the cloud runs on Intel."
Microsoft's server spending decisions have the potential to impact suppliers' bottom lines -- its Azure service is No. 2 in cloud infrastructure behind Amazon, and it's one of the biggest server buyers. Last month, computer maker Hewlett Packard Enterprise Co. reported disappointing quarterly revenue, citing "significantly lower demand" from a major customer. That client was Microsoft, people familiar with the matter said.
This isn't the first time ARM manufacturers have taken aim at the server market. Other chipmakers have promised computer components—based on the ARM technology that dominates in mobile phones -- that would loosen Intel's stranglehold, yet none have done so. That may be changing this year as Qualcomm, one of the few companies that can rival Intel's spending on research and design, begins offering its first server processor and as other chipmakers finally field long-promised chips that are capable of competing.
"This is a marathon, it’s not a sprint. I’m not starting to count the dollar bills any time soon," said Anand Chandrasekher, a former Intel executive who heads Qualcomm’s serverchip unit. "One day in a few years we will wake up and say ‘this is pretty cool when did that happen?"
Intel expressed confidence in the continued superiority of its Xeon server chips, in a statement.
"We operate in a highly competitive market and take all competitors seriously," the company said. "We are confident that Xeon processors will continue to deliver the highest performance and lowest total cost of ownership for our cloud customers. However, we understand the desire of our customers to evaluate other product offerings."
Microsoft will give an update on its work on Project Olympus today in a keynote speech by Kushagra Vaid, general manager of Azure Hardware Infrastructure at Microsoft, as part of a track of sessions on the Microsoft design at the conference. Partners including Qualcomm, Intel, Dell Technologies, Hewlett Packard Enterprise, Advanced Micro Devices Inc. and Samsung Electronics Co. are making chips, servers and components for use in the Microsoft design, said Vaid, who spent 11 years at Intel before joining Microsoft.
One of those planned components is an add-in box made by Microsoft and chipmaker Nvidia Corp. that plugs into the server to enable powerful processing for artificial intelligence tasks. The device, which runs Nvidia's graphics chips, lets Microsoft and other cloud providers more easily and cheaply host AI applications on their cloud networks. For customers, the product frees them from having to invest in the computing power needed to perform the complex training and analyzing needed for tasks like machine learning, Nvidia Chief Executive Officer Jen-Hsun Huang said.
"In order to use deep learning you need a supercomputer and a platform that runs any and all AI tools. Startups would rather use their money to hire people and do software development," he said. "Now there are AI supercomputers in the cloud and you pay as you go."
While the AI device announced today was developed with Nvidia, Microsoft said future updates could add products using Intel's Nervana chips.