AI Hardware Market to Reach $15.6 Billion
by 
Juline Longo, Smith & Associates
I’m privileged to spend my work days engaged in the processor market. As a processor buyer for many years and now as the manager of that commodity for my company, I’ve seen a lot of growth and a lot of change. Fortunately, EPS is giving me the space to offer a frequent update on the processor market – a place to share what I’m seeing. I enjoy following processors because they are very much at the center of computing, governing an array of critical tasks and capabilities.
Consumers, enterprise and industrial users alike expect technology to work quickly, seamlessly, and efficiently. Regardless of how we are engaging with technology, we expect greater speed, more responsive, longer battery life, all aspects governed by processors. I expect this of my own computers and technology and I know that it continues to drive refresh cycles across many market sectors. It's this driving force for newer, better, faster, that continues the R&D investment and serves up the next generation processor series.
Big Data and big growth
I've been watching the continuing growth story of Big Data expansion and cloud services for a while now. From my vantage point, the exciting growth is not just for enterprise servers, the growth cycles are made up of a diversified set of industry and sector demands covering consumer, enterprise and industry. The strength of this combined demand from multiple sectors has been pushing processors into longer lead times and supporting price increases for many quarters, and there is little in the market data to believe that this will change anytime soon.
Looking ahead a bit, the next set of major changes for processors will come in architecture - while 14 and 16nm have currently begun production, already 10nm-nodes are on the horizon. The 10nm tools are qualified and gearing up with the first chips ready for testing – but it'll still be a few years before real production gets going (read more about 10nm challenges in Semiconductor Engineering).These smaller nodes will bring along important end-device design changes, I'm sure that wearables and portable devices will see some real advances. With more wearables and connected devices, that means there will be more demand for the servers supporting the cloud services to keep everything connected, adding to the continued volume demand for a variety of processors across market segments.
Getting back to the current supply chain situation, there are some real changes happening at the fab and chip manufacturer level that affect availability now. For example, the growth in Big Data centers is changing how companies like Intel are designing, producing and even strategizing their market positions. The massive Big Data centers demand customized hardware to solve their unique challenges. To meet these demands, Intel and others are expanding their processor lines to provide custom solutions now in the "tens of thousands to the hundreds of thousands" according to Diane Bryant, head of Intel's data center business in an interview with The New York Times in December.
Downstream, at my team's desks, we see an effect on the supply chain from this change to include customized chips. It's similar to what we saw recently in the memory market: limiting supply (with memory through consolidation and strategic production) that leads to rising demand and higher pricing. For the processor market also, I'm seeing the increase in customized orders leading to longer lead times for components that our customers need. The time the fab spends dedicated to customized chips is time not allocated to other runs, that's reducing supply and increasing lead times down the channel.
I see this ebb and flow of supply and demand when I pull back and look at longer time frames. Looking at the period from the second half of 2014 to now, there have been some lead time improvements along with price increases that are now stabilizing. For example, back in August, we were seeing between 4 to 10 week lead times for Bay Trail processors. One month later, in September, the demand more than doubled and increased lead times along with an 8% jump in pricing.
Comparing the market situation for this processor series with this month, these same Bay Trail processors, are still short which has increased the pricing significantly. Meanwhile, I am seeing some price stabilization for a set of Haswell mobile processors now that lead times have improved to the 1 to 2 week range.
Demand strength demands diversity
Looking at the market, I see that servers are still hot and demand for the processors supporting that hardware is strong. As I see it, it is important to understand that the customization of processors at the fabs for the server market is affecting pricing and availability across the processor sector. I see server growth continuing to strengthen in 2015 based especially on the requirement of handling Big Data, cloud services, as well as enterprise upgrades to improve response time and analytic capabilities. So, for processors dedicated to the server market, the growth forecast is strong, and the same is true for the individual IoT devices that will also demand their dedicated processors.
I am already seeing an increase in demand for the mobile processor families to meet the diversifying end-products in mobile and wearable devices. What is important to my customers is pricing and capabilities like power efficiency, of course. At International CES 2015 there were many mobile solution chipsets on display along with the end-devices designed for many market sectors and sizes. Intel, for example, unveiled their latest SoC line-up, code-named "Curie," designed specifically to support the new generation of wearable devices. I am sure that we will see more growth in processors dedicated to different market sectors alongside of the customized processors.
Processor growth
In this monthly blog, I will take a look at what is affecting processors currently and what I see on the horizon: trends, supply chain constraints or successes, among a number of other critical events as they come up. I see many exciting changes in processors happening in the industry now because of the new growth directions. Processors are and will remain the core of computing, simply put. Hand-in-hand with the processor market I'll be tracking whether we've really reached the end of Moore's Law, how pricing and lead times go hand-in-hand with other industry events, and what's new on the R&D front that could impact EMS providers and OEMs. From the smallest wearable device to massive server installations, across market sectors from consumer to industrial and mobile to automation, I'll keep you up to date on what I have been tracking, what happened, and what to watch.
Juline Longo is Smith & Associates' CPU Commodity Manager
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