The Hardware Winners of a Cloud-Computing Boom

Without hardware, there would be no cloud. But cloud-centric hardware isn't always the same as the box you use to surf the Web. Maintaining constant uptime, speedy data transfers, and always-on connectivity aren't optional when providing service to thousands of demanding businesses.

I've put together a list of some cloud-serving hardware manufacturers that might be worth your time. You'll find a few familiar faces (paired with some not-so-familiar numbers), and you might be surprised by who's taking the pole position in this explosive market.

The processor king
Intel (NAS: INTC) is one company that's virtually guaranteed to ride the growth of cloud computing. It commands a monopolistic share of the processor market, and it's making inroads to solid-state drives as well. An investment in Intel -- as you'll see by following the link -- is an investment in computing, period.

A few quick stats regarding Intel's dominance:

  • Server processor market share: 95.1%.
  • Net margin: 25%.
  • Research and development: $7.7 billion annually, 15% of revenue.
  • Five-year revenue growth: 57%.

There are always competitive risks, but Intel won't need a 95% market share to continue growing as more activity moves to the cloud.

The storage rumble
Intel's processor dominance makes that segment seem dull, but there's a major battle brewing in the storage hardware industry. On one side, hard-disk manufacturers Western Digital and Seagate (NAS: STX) control more than 60% of their spinning-media market. On the other side, solid-state drives from much smaller companies are absolutely trouncing their old-school competition in transfer speed, an all-important consideration when delivering a lot of data.

SSDs might be faster, but they sure cost a lot more. That pocketbook pinch is driving server (and PC) manufacturers to make their own SSDs, according to iSuppli research conducted last year. For many large-scale manufacturers, it just makes more sense to buy the flash memory to build their own drives. That's bad news for third-party SSD manufacturers such as SanDisk and OCZ Technology (NAS: OCZ) , but it could be a big opportunity for memory-chip makers.

The report pointed out Micron (NAS: MU) as one big benefactor of this trend, but Samsung has more than twice the flash memory market share. Intel, as I pointed out earlier, is also moving into SSDs. Western Digital bought its way into the SSD market in 2009, but it may be at a disadvantage without chipmaking capabilities of its own.

A few quick storage stats:

  • Western Digital first-half 2011 shipments: 103.6 million drives.
  • Seagate first-half 2011 shipments: 101 million drives.
  • Combined Western Digital and Seagate market share: 63.5%.
  • Combined Western Digital and Seagate 2011 revenue: $20.4 billion.
  • Expected SSD revenues (all manufacturers) in 2011: $4.4 billion.
  • Projected SSD revenues in 2014: $7.2 billion.

The box builders
That takes care of processors, storage, and memory chips. What about the companies that put it all together? As with hard drives, it's pretty lonely at the top. IBM and Hewlett-Packard (NYS: HPQ) dominated in 2011, with each shipping about 30% of servers worldwide. Not every server gets used by the cloud, of course, and some providers may choose custom-built alternatives.

Neither IBM nor HP is known as a "server company," but both are still good cloud plays thanks to their cloud presence. IBM is perhaps the only company to operate throughout the three layers of cloud computing, offering both computing capacity and software as a service as well as servers.

To keep your eye on these companies, add them to your Watchlist now. Looking for more information on this incredible opportunity? The Motley Fool's put together a free report on the cloud computing phenomenon that can tell you more about where it is and just how much money is at stake. There are hundreds of companies trying to capitalize on the cloud, but we've found some of the best. You can find out more today -- reserve your free copy of this important report while it lasts.

At the time this article was published Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. The Motley Fool owns shares of Western Digital, IBM, and Intel. Motley Fool newsletter services have recommended buying shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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