Apple in the server rack?

From Alex Eule’s “Apple’s New MacBooks Have Delighted Critics. Why Investors Should Care Too.” published Friday by Barron’s:

Apple consumers are happy again, but what does it all mean for investors? Shares of Apple are down 3% since the M1 laptop reviews came out on Nov. 17. The indifference isn’t surprising, given that Mac sales were $28.6 billion in Apple’s latest fiscal year, just 10% of the company’s total sales and roughly half of what its fast-growing Services segment brought in.

Yet investors shouldn’t tune out Mac developments.

“While it’s hard to do some additive math here, we think more importantly that it just further underscores Apple’s value and perhaps previously hidden value,” wrote Robert Maire, a longtime chip observer who runs boutique firm Semiconductor Advisors, in a note this past week. While it might seem far-fetched, he notes that Apple could even sell its new chips to the profitable server market. “Power and cooling are perhaps the biggest deals in the server world, and so far, one of the biggest selling points of the M1 is its low power and fans [that] never go on. The power savings alone could be the reason to switch.”

Apple’s price/earnings ratio has basically doubled in the past 18 months. It’s going to need a few surprises to justify that rich multiple. The M1 chip is an excellent start.

My take: Does Apple want to enter the server market? Not much consumer surprise, delight or life-enrichment in that joyless space.

19 Comments

  1. Chris Ferebee said:
    Amazon AWS has been offering Arm instances for two years. The whole point of the Arm architecture is to commoditize CPUs.

    The M1 is great, especially for the application it’s been masterfully targeted at. But the idea that Apple would want to sell CPUs into a commodity market to help its competitors in cloud services reduce their costs is balderdash.

    4
    November 28, 2020
  2. Jonny Tilney said:
    No doubt there is more ‘hidden value’ as he calls it. More appropriate to call it ‘ignored value’, its undervaluation has been apparent to members of this blog for many years, for me, 15 years.
    But, how does he say ‘..but the company rarely surprises us anymore, especially when it comes to hardware. When EarPods were decried as ugly and useless, when AppleWatch was decried as likely only for a few aficionados, these products have taken the world by storm and have been copied by everyone who could. What is he talking about?

    8
    November 28, 2020
  3. Gregg Thurman said:
    The M1 is an amazing processor, when compared to Intel’s desktop equivalents. But how good is that comparison when compared to server class processors?

    If Apple were to develop an “S” processor that packed only high power cores (and more of them), needing some, but far less, cooling than today’s server class processors, and sold them to server manufacturers, it could profit from the server market without selling servers.

    Imagine Macs, and only Macs, equipped with M1s including a Secure Enclave, being used to manage a server farm. Access to the server farm would no longer utilize passwords, but rather fingerprint or visual ID. Of course, this would require the ability to recognize multiple fingerprints, but I think that would be a relatively simple feature to add to the Mac feature set.

    Cooler, more powerful, AND more secure.

    How much would an “S” processor, so equipped, be worth to server manufacturers? I would think at least as much as an Intel processor, maybe more.

    4
    November 28, 2020
  4. Fred Stein said:
    I’m thrilled to see a third party endorse my crazy idea.

    A substantial advantage in power and cooling gives Apple pricing power in the server market. Server farms are not homogeneous. Apple can cherry pick work-loads where S1 (thanks Gregg) powered boards command good margins.

    Apple has the best chip designs and the best foundry. There’s no limit where they can go.

    3
    November 28, 2020
  5. Mordechai Beizer said:
    I don’t really see the issue with Apple selling server class chipsets to blade manufacturers once they release such for an updated MacPro. Intel makes a lot of money from server class chips. If you want to consider the socially responsible aspect, a dramatic reduction in the need for server farm power and cooling is a good thing. It would also increase their economy of scale in what would otherwise be a niche variant of their M-class chips.

    1
    November 28, 2020
  6. Robert Paul Leitao said:
    Apple’s earnings multiple has moved significantly higher primarily due to analytical models reflecting the trajectory of Services revenue and the anticipated high margins. Apple’s share price has moved slightly lower over the past few weeks not because of market disappointment but due to sector rotation.

    Before Apple endeavors to sell M1 chips into the server market, I would prefer the company complete the M1 transition throughout the Mac product line. The company could create its own server line which would deliver high performance with energy efficiency. It wasn’t too long ago Apple offered the Xserve line. There’s also a rack mount version of the current Mac Pro.

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    November 28, 2020
    • Gregg Thurman said:
      There’s also a rack mount version of the current Mac Pro.

      Not being in the market for a server since 2002 I haven’t followed Apple’s products in this sector for a very long time.

      As Apple completes the M1 transition it would be natural to upgrade the rack mount version of the Mac Pro as well (2024?).

      Imagine the M1 with three years of improvements attached powering an Apple branded rack server.

      On the subject of future M1 upgrades, I think iMacs and Mac Pros will be introduced with M2 processors. Introduction of ARM processors with the M1 was meant to be a (friendly) slap across the face, alerting developers that even bigger things are coming.

      Think of the upgrade cycle on iMacs and Mac Pros that will be at least 3 years old come Summer of 2021.

      1
      November 28, 2020
  7. John Konopka said:
    I don’t know what makes a good server chip. The M1is optimized to run macOS on a laptop. Since Apple runs their own server farms they have the knowledge about how to optimize this SOC for that need. It might be worth it to them to do this just for internal use. Server farms will only grow. If it cuts there power use and speeds up response time and maybe adds some secret sauce that could be worthwhile.

    0
    November 28, 2020
    • Gregg Thurman said:
      The M1is optimized to run macOS on a laptop.

      Which is why I’m calling iMacs and Pros using an M2 and servers an S1.

      Apple has the ability to optimize its ARM chips to anticipated function and workloads, just as it does iPad, iPhone, Air Pods, Home Pods, AppleTVs and Apple Watch processors.

      Each product has its own OS, allowing Apple to design optimized processors for each.

      All OSs are based on OSX, while all processors were born in A-Series, each using only what it needs and nothing more.

      2
      November 28, 2020
  8. Hugh Lovell said:
    I’m sure that companies such as Macminicolo are interested in the new M1 Mac Mini for their racks.

    In fact, I’m thinking of an M1 Mini to replace my aging 21-inch iMac, which is not permitted to load Big Sur. Even with purchasing a display, this will give me an excellent Mac at a competitive price. I can’t be the only one thinking this way.

    1
    November 28, 2020
  9. Eric Bickford said:
    Here’s a relevant slide from our pitch deck at MacWeb.com on how Apple M1 SoC servers in the data center will change the industry.

    Server Generations (Data Center)
    1. Mainframe Tech
    2. Minicomputer Tech
    3. Personal Computer Tech
    4. Consumer Mobility Tech

    Apple Silicon as Cloud Server (Consumer Mobility Tech)
    – Inexpensive Hardware
    – High Residual Value
    – Low Wattage (TDP)

    0
    November 28, 2020

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