Intel To Challenge Nvidia With The Acquisition of Nervana Systems
The leading microprocessor manufacturer, Intel (NYSE:INTC), recently entered into a definitive agreement to acquire the deep learning technology startup Nervana Systems. The acquisition was announced in an editorial blog by Diane Bryant, executive vice president and general manager of Intel’s Data Center Group. She states that Nervana has a fully-optimized software and hardware stack for deep learning and has the advanced expertise in accelerating deep learning algorithms, which can help Intel expand its capabilities in the field of AI (artificial intelligence).
Intel’s Data Center Group constituted around 29% of the total revenues for Intel in 2015. And the group commands more than 90% market share of the data center microprocessor market. It is notable, however, that in the High Performance Computing (HPC) segment of the market, a new entrant has been gaining traction, Nvidia (NYSE:NVDA). The graphics processing leader has developed a series of products for use as a coprocessor in advanced computing applications. Coprocessors and the accompanying software are used to offload compute-intensive operations from microprocessors to increase performance. For example, in the most recent Top 500 Supercomputer report, 455 (or 91%) use Intel microprocessors, 55 (or 26%) use IBM Power microprocessors, and 13 (or 3%) use AMD microprocessors. And of the 500, 93 (or 19%) are designed to use accelerator/coprocessor devices, of which 67 (or 72%) use Nvidia corpocessors. Nvidia is also a leader in artficial intelligence and deep learning and has even developed a range of products are founded on this expertise. These include both coprocessors and the Cuda software environment on which they run.
In the light of Nvidia’s advances in HPC coprosessing, the significance to Intel’s acquisition of Nervana is much clearer. Sources report that Nervana has gained traction against Nvidia with its Cuda-compatible Neon software offering. The company is also developing a Deep Learning accelerator (i.e., coprocessor ) that is expected next year. Surely, Nervana’s advanced HPC stack will find fertile soil, once it is integrated into Intel’s resource rich environment. The acquisition of Nervana Systems is going to help Intel fortify its position versus Nvidia in the markets that develop to capture the power of these emerging compute technologies.
Here is why we believe Intel will benefit from this acquisition:
Artificial Intelligence To Revolutionize Data Center Computing
With the growth in the number and size of data centers, it has become increasingly difficult to manage them. However, data center management is likely to become easier with machine learning technologies. Consider the Amazon Machine Learning service, which is a fully managed service hosted in Amazon data center. This service can help predict when a particular component in the server needs to be replaced, or track any small changes in performance. One can build a model based on that data, which can be used to make predictions in real time. We believe that machine learning technologies will be extensively used in future data centers, making the operation of data centers more robust.
However, Intel claims that only 10% of servers worldwide were deployed in support of machine learning in 2015. Given the limited deployment of servers in support of machine learning, Intel stands a huge opportunity to capture share in this field. Also, the company claims that machine learning is the fastest growing form of AI. Acquiring companies such as Nervana Systems will help Intel build a strong foothold in this field and stay ahead in the industry.
Technology Companies Focused On Acquiring AI Startups
Over the last couple of years, AI startups have been important acquisition targets for large technology companies. It must be noted that Intel’s acquisition of Nervana was followed by Apple’s decision to acquire AI startup – Turi, in the past week. Further, Google acquired Deep Mind technologies in 2014 to step-up its AI portfolio. The increased acquisitions of AI based startups shows that larger technology companies are focused on ramping up their AI portfolio through acquisitions, to avoid facing competitive threats going ahead.
Competing Effectively With Nvidia
Though Intel is the leader in data centers processors, with more than 90% market share, it has more recently lagged in the market for coprocessors, where Nvidia has generated momentum. Whereas Intel is dominant in the processor market at large, Nvidia has successfully identified this corprocessor niche where it has garned significant market share. This is reflected in their recent growth rates. While Intel witnessed a mere 9% year over year growth in its revenue from the Data Center Group in Q1 2017, Nvidia saw a massive 63% year-over-year increase in its data center business during the same period. Of course, Intel’s data center revenues are a vast multiple of Nvidia’s. Still, it is in the market for HPC coprocessors that they directly compete. And both firms are out with new offerings. Intel has recently released its Xeon Phi processor family (formerly code-named Knightsbridge). And Nvidia is out with its Tesla P100, the processor that powers its DGX-1 Deep Learning System (the so-called “Supercomputer in a Box”). Clearly, the battle is on. It is in this context that we can best understand the value to Intel of the deep learning capabilities it gains through the acquisition of Nervana.
The Nervana acquisition should allow Intel to enhance its existing line of processors for deep learning capabilities. This comes from the fact that Nervana’s Neon framework can exploit GPU capability an has been ranked fastest in various performance measures. Further, as we noted above, the AI startup plans to deliver a chip based on deep learning technology in the coming year. This should help Intel from losing market share to Nvidia, which has the most advanced GPUs in the market currently.
A Downside Scenario:
Intel currently commands around 99% of the data center processors market share. We forecast a slight decline in Intel’s market share over our review period. However, if Intel’s market share in data center processor market declines to as low as 80% (as compared to our current estimate of 95%) over our review period, due to heightened competition from Nvidia, it will lead to an approximate 10% decline in our existing price estimate.
See our complete analysis for Intel
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