Rackspace Cuts Reliance On Intel Corporation, Opts For IBM

Intel Corporation (NASDAQ:INTC)’s dominance over the server chip market could get a small but meaningful blow from Rackspace Hosting, Inc. (NYSE:RAX), which on Tuesday announced it is favoring International Business Machine Corp. (NYSE:IBM)’s alternative OpenPower processor technology. Rackspace Hosting plans to lower its dependence on Intel by moving some of its server computers to modified IBM processors, says a report from Bloomberg.

Improved performance

The Texas-based company said it will be joining a group that includes over 80 firms that are developing and using computer processors from IBM’s “Power” designs. These designs are a part of the OpenPower Foundation, which was formed by IBM with Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG), NVIDIA Corporation (NASDAQ:NVDA) and others. The group came into existence in August 2013 and was formed primarily to promote IBM’s semiconductor technology.

#MICUS: Value Managers Say Their Style Is Far From Over

Structured ValueNote of Chuck Bath, David Wallack, and Ramona Persaud's presentation from the 2020 Morningstar Investment Conference. Q2 2020 hedge fund letters, conferences and more Dead Again? Value Managers Say Their Style Is Far From Over For more than a decade, large value has been one of the most difficult factors to own. Moderator Linda Abu Read More

Aaron Sullivan, senior director for infrastructure strategy at Rackspace, said the company has been testing IBM server computers since 2012 and has noticed “exceptional efficiency and performance benefits” for applications. The executive further said the company plans to deploy thousands of IBM-powered server computers in the future.

OpenPower added that Avnet, Lawrence Livermore National Laboratory, Tsinghua University and others are also joining the group.

Is this a warning for Intel?

In October, IBM started shipping its Power8-based Power System servers, which directly compete with Intel’s Xeon systems. It is clear Rackspace is making efforts to lower its dependence on Intel-powered chips. Intel’s market share has risen in recent years to 98%.

A spokesman from Intel said, “We recognize it’s a competitive industry and we fully recognize and expect that the industry will, always has and always will, explore new options and experiment with those options.”

Sullivan noted that Rackspace’s software has been fully compatible with the IBM-powered chips. The executive added that the company did not go for ARM Holdings plc (ADR) (NASDAQ:ARMH) (LON:ARM), as its chips did not do well in tests. Generally, ARM chips have been considered the main alternative for Intel processors.

Sullivan notes that the OpenPower platform gives more control to companies over fundamental software, which is in contrast to Intel’s server chip technology. However, in September, addressing the criticism, Intel launched two more SKUs and an additional 20 custom SKUs for specific workload needs.

Rackspace’s move to IBM highlights the growing options available to the tech industry when it comes to chips. It could also mean a warning bell for Intel that the threat from rivals is rising.