Why Intel's Investment in Cloudera Makes Sense

Big data is more than just a buzzword; IDC has forecasted the big data market to grow to $32.4 billion by 2017, a 27% compound annual growth rate. Analyzing the enormous quantities of data involved requires significant processing power, and Intel's recent investment in big data software company Cloudera aims to ensure that Intel's chips power the systems running the company's software. With the threat of 64-bit ARM server chips from rival AMD and others looming, Intel's defensive investment in Cloudera makes a lot of sense.

What does Cloudera do?
Big data, at its core, is the analysis of quantities of data that are too large for traditional database systems. This data, often in the hundreds of terabytes or even petabytes, is spread across a cluster of computers, and the most common software used to process this data is Apache Hadoop.

Hadoop is completely open-source and free, and the technology behind it was originally developed by Google for analyzing the vast amount of data pulled from the web. Where does Cloudera come in? The company offers technical support for enterprises, as well as its own distribution of Hadoop, which includes advanced management and security features. The Hadoop market was worth $1.5 billion in 2012, and it's forecast to grow to $20.9 billion by 2018, representing a large chunk of the total big data market.

What this means for Intel
Cloudera is now valued at over $4 billion after Intel's massive $740 million investment in the company, and Intel is clearly betting that Cloudera will remain the leader in the Hadoop market. Cloudera will make Intel's x86 architecture its preferred platform, although the company previously announced plans to support the 64-bit ARM architecture as well. Where those plans stand after Intel's investment is unclear.

Intel is abandoning its own Hadoop distribution in favor of Cloudera, with the hope that throwing it's support behind the current leader will spur adoption of the platform and ultimately sell more Intel chips. Intel has a server market share of more than 90%, and with big data set to be a major area of growth over the next few years, protecting that market share against ARM-based competitors is extremely important. With PC sales slumping, server chip sales have been a bright spot for Intel, and the company would like to keep it that way.

Intel has projected that revenue from its data center group would grow by 15% annually in the long term, and the rise of big data will be a major driving force behind this growth. The number of devices connected to the Internet is exploding, and the amount of data generated by these devices will require ever-increasing processing power. Big data is relevant to nearly every industry from retail to financial services, and Intel's bet on Cloudera puts the company in position to greatly benefit from these trends.

The biggest threat
While ARM-based server chips have failed to gain any real traction in the server market thus far, AMD will soon be making a big push. With AMD unable to effectively compete with its own x86-based server chips, the company announced plans to sell ARM-based server chips in late 2012. The first of these chips was unveiled in January, and the first end-products containing these chips will be announced in the fourth quarter of this year.

AMD's projections for the server market are quite rosy, with the company expecting ARM to command 25% of the total server market by 2019. AMD expects to be the leader in ARM server CPUs, along with having a significant share of the x86 server CPU market, driven by a shift to smaller, more efficient processors. Given AMD's history in the server market, however, I'd take these projections with a grain of salt.

AMD has seen its share of the server market plummet from 15% in 2007 to just 4.4% in 2012, a massive decline that leads me to question the company's ability to predict the long-term trends in the industry. ARM-based server chips shouldn't be completely written off, of course, but AMD's projections seem closer to fantasy than reality.

The bottom line
Intel has thrown its weight behind the leader in the Hadoop market, a move that should give Cloudera a meaningful advantage while boosting Intel's server chip sales. With the big data market in the earliest stages, making sure that x86 is the architecture of choice is critical to Intel maintaining a dominant share of the server market. ARM does pose a significant threat, but Intel's position has been strengthened by its partnership with Cloudera.

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The article Why Intel's Investment in Cloudera Makes Sense originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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