New Trend of Microprocessor Industry in Global Cloud Computing Era

Final Project Individual Part

New Trend of Microprocessor Industry in Global Cloud Computing Era

1.   Introduction of microprocessor

A microprocessor is a computer processor that incorporates the functions of a computer's central processing unit (CPU) on a single integrated circuit (IC). The integration of a whole CPU onto a single chip or on a few chips greatly reduced the cost of processing power. ^[1]

The development process of microprocessor could not be discussed individually without the fast development of electronics engineering. In 1971, the first microprocessor which was 4-bit was invented, this was a significant improvement for electronics industry. One year later, the 8-bit microprocessor was invented. Here is a very famous law in the electronics engineering industry which is called “Moore’s Law” which means the number of transistors in a dense integrated circuit has doubled approximately every two years. The improvement of microprocessor was really fast according to the “Moore’s Law” which made the microprocessor upgraded from first 4-bit to 8-bit, 16bit, 32-bit, 64-bit until the early 1990s. Keeping up with Moore's Law is becoming increasingly challenging as chip-making technologies approach their physical limits. In response, microprocessor manufacturers look for other ways to improve performance so they can maintain the momentum of constant upgrades.

2.   Industrial profile of microprocessor industry

2.1 Size and Structure of the Industry

The Microprocessor Industry is a very Competitive Industry. Mainly because the two main competitors are the only two competitors fighting it out. Each of which try to outdo the other by launching innovative products, new marketing strategies and newer branding attempts. In order to have a clear view of the macro-environment of microprocessor industry, we could use Porter’s five forces analysis model.

2.1.1 Bargaining power of suppliers& buyers

Bargaining power of the supplier is a weak force due to the fact that even if a supplier raises costs, it is easy for a microprocessor firm to easily change the supplier with a minimal switching cost.

The Bargaining power of the buyer is a major force as it depends on the Original Equipment Manufacturers (OEM's) example: Dell, HP, IBM etc. Intel began a marketing campaign called 'Intel Inside' which means that Intel can educate the customers about their microprocessors present inside the PCs without the need of going through OEMs which resulted in the down streaming of their purchasing power.

2.1.2 Threat of Substitutes

The Substitution force is weak since there is a lack of substitutes present and even if they were in the past (for example Apple and hand held PC's) they now use Intel processors.

2.1.3 Threat of new entrants

The Threat of new entrants is important mainly because it affects the profitability of the leading manufacturers in the industry. Intel's gross margins reached 80%. Other firms including Motorola and Apple tried to enter the market but eventually failed.

For a new firm to enter the market they had to firstly invest a large amount on fixed cost to create facilities for production as well as devote large amount of Research and Development on production of new chips so that they remain competitive with other manufacturers. Of course, bigger firms have advantages in R&D since older and bigger companies have been involved in R&D of chips since a long time and have gained valuable experience over the years in comparison to new firms.

2.1.4 Rivalry among existing competitors

Rivalry among existing competitors is the most important force in this industry since there are only two main competitors: Intel and AMD.

Because the fixed costs are high and marginal costs are low it results in tremendous pressure for manufacturers to cut down on costs below the market average so that they attract customers as well as make up some of their fixed costs. This ultimately results in a situation where the two competitors compete on the same dimension for one gains and the other loses.

Another cause of strong rivalry are Exit barriers where companies try to expand their products into other PC components but inherently remain linked to profits based on manufacture of microprocessors.

2.2 R&D Activities

R&D expense is essentially the amount of money that a company spends to develop new products and services each year. The investment of R&D to a specific area represents the company’s level of emphasis to the area. According the data of R&D expenses for the main groups of microprocessor industry, the potential and trend of the industry could be seen.

Intel and AMD are the two giants in microprocessor industry, but the strong R&D capability of Intel has been gradually enlarging the distance to AMD. Also, Intel has used its strong market position in microprocessor manufacturing to open doors for other associated ventures.

AMD has been attempting to challenge Intel for market share for a long time, but with 20% market share, its smaller size puts it at a disadvantage. Because Intel has more money to spend on R&D. There is a very interesting company ARM, which may have great potential in this industry.

ARM, which began life as a fairly-low-capability chip for a British PC, again back in the 1980s. According to the R&D tends of ARM, we could see the incredible potential although the amount expenses could not compete with Intel at present.

2.3 Leading Companies

With the continuing going downhill of AMD’s business in recent years. The macro-environment of microprocessor industry has become really tough. The data proved that Intel is the absolute winner in microprocessor industry up till now.

Figure 4: Microprocessor industry market share in 2012^[3]

3.   Impact of emerging technology cloud computing

3.1 Current situations of cloud computing

Cloud computing has been credited with increasing competitiveness through cost reduction, greater flexibility, elasticity and optimal resource utilization. The Cloud market is still potential in the future, cloud applications will account for 90% of total mobile data traffic by 2018, compared to 82% at the end of 2013. Mobile cloud traffic will grow 12-fold from 2013 to 2018, attaining a compound annual growth rate of 64%. Hence, to integrate products with cloud computing technology is absolutely the future trend for the companies.

3.2 Strategic approach of ARM to utilize impact of cloud computing

ARM as a relatively small size company than Intel, it really has even larger potential than other competitors. Intel was once a player in ARM but abandoned this business in favor of Atom. This may be a big mistake for Intel’s microprocessor strategy. Without the large barrier Intel in mobile device processor industry, ARM dominates the mobile device market today, and there's no end in sight. ARM Holdings uses a business model that is the opposite of Intel's, doing design work but then licensing to those who build all manner of chips, including the Samsung parts that run in the iPhone and iPad. And the popularity of ARM has led even Microsoft to port Windows 8 to the ARM architecture.

   ARM CPUs and GPUs drive mobile market

                                            

However, the emergence of Cloud Computing technology might be a large impact to the future direction of microprocessor. As a matter of fact, the PC industry has entered its final stage and this is going to lead PC microprocessor industry to death. Meanwhile, more and more requests for convenience from people show that computing should occur in the cloud, not on someone's desk, and increasingly clients will be mobile and thus have a strong emphasis on low-power operation. However, a shift away from running apps on the mobile device to running these in the cloud really need more request for security and manageability, hence the efficiency of microprocessor of mobile devices is still critical in the future. When compared with Intel, ARM’s strategy approach of dominating the mobile microprocessor market is wiser and more far-sighted, of course, the post-PC era will still last for a long time, so there is enough time for Intel to reconsider its strategy approaches to face the impacts of mobile cloud computing.

ARM Intelligence Flexible Cloud

4.   Impact of globalization

As a sub-unit industry of electronics devices especially PC industry, the microprocessor manufactures has done their globalizing strategies for a long time for example the collaboration of Intel with PC companies makes the Intel microprocessors run in almost every PC around the world. Actually, the globalization of cloud computing technology is going to be a large challenge and opportunity for microprocessor companies.

The largest barrier for cloud computing’s globalization is not technology but policies and regulations of different countries. Because of uncertainty of information security, cloud computing may not be welcomed by many countries. The opening degree for cloud computing measure the countries’ preparedness to support the growth of cloud computing. Here is an analysis of cloud environment of 24 countries which together account for 80 percent of the global ICT market:

Figure 5: Cloud computing policy environment ^[2]

5.   Conclusion

With the impact of emerging technology cloud computing, the future structure of microprocessor industry has to meet a large reconstruction. Fortunately the post-PC era will still last for a long time which gives companies enough time to do transformation. As we know the final goal of ICT industry is to realize concept of Internet of Tings(IoT) and cloud computing makes it no more just a concept. So whether the company could foresee the future situation and make innovative strategy approaches to catch the coming opportunity of Big Data era will be critical for the development of microprocessor industry in the future.

6.   Reference

Internet Resources:

[1]http://en.wikipedia.org/wiki/Microprocessor

[2] http://cloudscorecard.bsa.org/2013/countries.html

[3]http://www.itcandor.com/microprocessor-q312/

1. Grueber, M. (2010, May 1). 2011 Global R & D Funding Forecast - Industrial R & D: Electronics and Computers. Retrieved from http://www.rdmag.com/articles/2010/12/2011-global-r-d-funding-forecast-industrial-r-d-electronics-and-computers

2. Cloud computing. (n.d.). Retrieved May 3, 2015, from http://en.wikipedia.org/wiki/Cloud_computing