The Big Story

A major decision

AMD has a colorful history as a chipmaker and perennial thorn in Intel's side — albeit one that hasn't done much to dent Intel's domination of the PC and server processor industries in the 21st century. Still, the upstart has outmaneuvered the giant on several occasions in the past, only to lose momentum amid a shift in the market, a series of unforced errors, or both.

AMD's $35 billion acquisition of Xilinx — easily the largest in its 51-year history — is a bet that demand for flexible purpose-built chips is about to transform the way enterprise data centers are designed and built. Its vision is similar to Nvidia's plans for Arm, should that other blockbuster chip deal be approved, and its timing finds Intel at one of its weakest points in a long time.

Tuesday's deal comes amid AMD's latest resurgence, which has increased its market value from around $2.5 billion when CEO Lisa Su took over in 2015 to over $100 billion earlier this year.

• The company's most recent generation of chip designs for both PCs and servers rival or exceed the performance of anything Intel can sell.
• Intel's well-documented manufacturing stumbles have created an opening for its longtime rival, and investors are starting to grumble.
• AMD's chips use the same instruction set as Intel's, which means companies looking for alternatives don't have to rewrite their existing apps as required by other data center alternatives, like AWS' Graviton2 processors.

Xilinx is not exactly a household name, even within tech circles. But its field programmable gate array (FPGA) chips are used in cars, airplanes, wireless base stations and all manner of embedded industrial equipment that powers services most of us come into contact with on a regular basis.

• AMD doesn't play in most of those markets, and Su told Reuters that the complementary nature of their product lines creates a stronger overall portfolio than either company could develop on its own.
• AMD's enterprise customers — big cloud providers like AWS as well as companies still rolling their own data centers — are increasingly interested in using FPGA chips to increase performance for specific tasks.
• These so-called data processing units (DPUs) are the new hotness in enterprise computing; they combine traditional processors with fast and lightweight chips designed to speed up key tasks like networking.
• VMware CEO Pat Gelsinger told Protocol earlier this year that DPUs, sometimes called SmartNICs, could absorb as much as a third of the workload traditionally placed on the processor, which has all manner of implications for future processor designs and costs.

Still, $35 billion is a lot of money, especially for a company that is expected to record around $9 billion in revenue this year, not including Xilinx.

• Intel made a similar move five years ago with the $16.7 billion acquisition of Altera, a direct competitor of Xilinx. But it's far from clear whether that deal improved Intel's fortunes in this space.
• "Whatever Intel thought might happen with FPGAs when it spent all of that money on it did not happen," The Next Platform concluded.

Yet it does seem clear that the competitive pressures that drove the first era of cloud computing are shifting as the market matures.

• Massive wagers are being placed that the best integration of different types of data center chips will win the next decade of this market, rather than raw performance.
• If hybrid cloud is the new normal, there are a lot of companies that will need to modernize their on-premises equipment in the next five years.
• The need for AWS, Microsoft and Google Cloud to differentiate themselves is only going to increase as growth slows down, and silicon could be just the way to do it.

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This Week On Protocol

Hot or not? Somebody is going to figure out cloud gaming; why not Facebook? The company has world-class technical infrastructure, an enormous community engaged with its services and, as this interview with Protocol's Seth Schiesel shows, it occupies an interesting space in this market without either a phone or console business to defend.

Pretty SaaSy: There aren't a lot of enterprise software companies that would presume to tell their customers how to vote in next week's presidential election. Expensify is the exception, and CEO David Barrett told Protocol's Biz Carson why he made the decision to send an email endorsing Joe Biden that turned heads in Silicon Valley.

Around the Cloud

• Microsoft posted a strong quarter, with revenue and earnings that exceeded expectations and a 48% increase in revenue from Azure.
• Those results stood in contrast to database giant SAP, which reported weaker-than-expected revenue and warned investors that a delayed move to embrace the cloud wholeheartedly could have an impact on margins for some time to come.
• The parade of bad news continued for Intel: It saw a slowdown in data center revenue, amid weak demand from data center operators and new chip options for cloud buyers from AMD and AWS.
• Twilio continued its run this year with a 52% jump in revenue as well as increased guidance for the fourth quarter.
• We're about a month away from AWS' big re:Invent conference, and The Information reported that the cloud leader has plans to introduce a multicloud product during the event that sounds a lot like Google Cloud's Anthos.
• Speaking of Google, the days when it was sensitive to employee concerns about working with the Trump administration seem over: The Intercept reported that Google Cloud's AI technology is being used in conjunction with Anduril's border surveillance services.
• Dell provided more details about its plans for shifting its business model from transactional server sales to subscription services, which includes new multicloud management software.
• Zoom rolled out end-to-end encryption across its video services this week, but increased security might require users to make a few trade-offs.
• Microsoft said it will open a new data center in Taiwan at some point in the future, right as trade tensions between China and the U.S. reach new heights.
• Get the chance to convert an old Nazi submarine bunker into a data center? You honestly have to do it.

A MESSAGE FROM MICROSOFT AZURE

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