Thursday, March 02, 2006

Google's Economics

Forbes re-reported the story that Google is going AMD, even though INTEL CEO Paul Otellini sits on Google's board. Surprised? Not really, it's a simple matter of economics.

Google has 200,000 servers right now, and it's adding more and more every day. How much can Google save by going AMD?

Marc Andreessen has done a study for his own dotcom startup's data center choices, he found by using SUN's Opteron servers instead of Intel Xeon, he could save $97.5 - $39.0 = $58.5 per server per month on energy and rack space. Since Marc is using his hard earned money, I bet he is pretty adamant on minimizing the total cost.

Now, let's apply the Marc Andreessen study to Google. With 200,000 servers, the total savings per year is:

$58.5 * 12 * 200,000 = $140,400,000 = $140.4 million

Google has 295.5 million outstanding shares, the savings above translate nicely into $0.475 EPS.

With a P/E of 75, that translates into $35 higher stock price and $10.5 billion of added market cap. Even though INTEL is quite rich, I doubt it can pay Google that much money to keep it.

Now, consider that Google must grow and add more servers....


Anonymous Anonymous said...

I think there may be a more important issue involved. There has been discussions that Google _may_ now require 64bit integers due to the number of pages in their index. Opteron is the obvious choice for a bunch of reasons.

12:28 PM, March 02, 2006  
Anonymous Anonymous said...

How long until Intel comes with 64 bit servers? I heard April/May. Is that correct?

2:09 PM, March 02, 2006  
Blogger Eddie said...

There is an important element absent from your analysis:

Intel computers are less powerful, therefore Google would need more computers. But it is more expensive to have 10 computers doing what one computer 10 times more expensive can do.

Taking into account dual cores, 4-way opterons versus equivalent 8 single core 1-way xeons, the economies explode.

Remember that Google load is not only transactional, but also it needs processing power to factor the relevance of pages.

2:58 PM, March 02, 2006  
Blogger Sharikou, Ph. D said...

Yes, I know, as I pointed out earlier, in turns of price/peformance, AMD has a 4X advantage, I am only looking at the cost of running the data centers, and only look at space and watts of the SWaP equation. If you consider the hardward costs, it will be even larger.

3:56 PM, March 02, 2006  
Anonymous Anonymous said...

Corvettekid Says: Sharikou, in your opinion will AMD be able to keep getting these high-profile wins? I think they create the kind of "drip-drip-drip" that wears on the diehard Intel supporters in the mutual fund arena, the guys who say "Yeah, so-and-so downgraded Intel but it's already in the price."

BTW, I think Intel's strength despite the JPM downgrade shows that it will take MATERIAL negative news to knock it down from this point. Or a slow bleed over time. But you won't see Intel go down 10% from these levels unless the market tanks bigtime and they have bad news. My professional opinon as a former PM.

6:12 PM, March 02, 2006  
Anonymous Anonymous said...

Corvettekid: OOps, I meant Intel wouldn't go down 10% in a day or two as opposed to in the last few months when it had 2 or 3 such days. I still think it is $16 by year-end or whenever the market bottoms in '06.

6:14 PM, March 02, 2006  
Anonymous Anonymous said...

I work for a major aerospace company.

I purchased a 4 way Itanium box.
I also purchased a 4 way Opteron box.

Tested both with software that we have to use in real life.

No comparison.

I am purchasing 25 8 way (4 slots / 8 chips) AMD Opteron boxes.

AMD is SO far ahead of Intel in the 64 bit arena.

Thanks for putting out the truth.

Just another Corporate_Computer_Nerd making a comfortable living.

7:22 PM, March 02, 2006  
Anonymous Anonymous said...

Something else to keep in mind...

If Google uses servers with boards that support the 875HE, when the Quad Core Opterons come out, they can double the power of there servers with just processor upgrades and bios updates. They wouldn't need more servers or rack space for more computing power.

Going with AMD Opteron is a no brainer. Anyone still buying Intel for servers is just braindead.

6:10 AM, March 03, 2006  
Anonymous Anonymous said...

Wonder what would happen to this thread if it were to be written in March 2007 instead of 2006. Intel now has resumed its pretty comfortable lead?

2:02 AM, January 20, 2007  

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