Summary:

Most mid-sized web companies like them are beginning to see the demands on their infrastructure increase, especially as they start to cater to more and more web visitors. Expect a bump in the sales of servers and by extension chips that power these servers.

A few days ago, Jay Adelson, chief executive officer of San Francisco-based social media company, Digg, told me that his company now has hundreds of servers. And that the size of its infrastructure was continuing to grow with its usage. And that’s after the company started to maximize its CPU usage after tapping the power of open source software such as Cassandra and Hadoop for data analytics and data mining.

And it’s not just Digg, but most mid-sized web companies like them are beginning to see the demands on their infrastructure increase, especially as they start to cater to more and more visitors, including those accessing them from smart mobile devices. Add to this the demand for enterprises, and it’s clear that we could soon see a bump in the sales of servers and by extension, the chips that power them.

These strong trends are already visible in the sales of AMD and Intel. While AMD saw the sales of its server unit go up 21 percent during the fourth quarter of 2009, Intel’s data center group posted a 21 percent gain in revenues for that same period. Semiconductor sector analyst Doug Freedman of Broadpoint AmTech thinks that people are underestimating server demand. He expects strong demand for Intel’s Nehalem EX – Westmere and AMD’s Maranello line-up of server chips and for both firms to materially benefit from a contemporaneous recovery in enterprise spending.

In a note to his clients this morning, Freedman wrote that he expects that there will be 14.1 million server chips sold during 2010, up from his previous estimate of 13.9 million. Of the 14.1 million MPUs, he expects Intel to sell 12.4 million with an average selling price of $519. He expects Intel to bring in about $6.45 billion in 2010 revenues. In comparison, AMD will sell 1.68 million units at an average price of $411, he predicts.

This growth is coming at a time when large web companies such as Google, Facebook and Microsoft are choosing to build their own finely tuned servers and use them in increasingly large volumes. The growth in demand and the sheer size of the revenues is one of the main reasons we are seeing many startups such as SeaMicro start to tinker and come up with alternative server architectures.

Stacey has pointed out in several posts that the increasingly ARM-based processors are looking to take on Intel and AMD in the server chip business and change the economics of the server business. But for now Intel and AMD can continue to party, thanks to demand for servers from guys like Digg.

By Om Malik

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