In four years, Arm architecture will account for more than half of the cloud server market.

Steve Brazier, president and CEO of market research firm Canalys, said Arm architecture will account for more than half of the cloud server market and 30 percent of the PC market in four years.

Speaking at the Canalys forum in Singapore, he noted that cloud processors are already moving to Arm, with Google and Amazon developing their own ARM processors, very stealthier and very fast.

"By 2026, not 2050, just in 2026, four years from now, half of all cloud processors will be ARM-based, 30 percent of all PCS will be ARM-based," Brazier said. "This is an extraordinary shift and an industry-changing event that has just not received enough attention so far."

The smartphone market has always been 100% Arm dependent, and the tablet market is no different. Arm has 8 per cent of the PC market, which is almost all of Apple, plus a fraction of Lenovo, Qualcomm and one or two others.

"It would be an incredible shock for Intel and AMD to suddenly find themselves fighting to protect their business," Brazier said. "The innovator's dilemma has struck and they will struggle to keep up with the pace of change."

During the COVID-19 pandemic, Apple has made a remarkable transition by shifting its platform architecture, as its complete product platform is moving from Intel to its own ARM-based processes.

As far as PCS go, Brazier explained, there's 30 percent on Arm, which means two things: One scenario is that Apple will take the majority of that 30 percent, simply because they're way ahead and everyone else is suffering. "The other, more likely scenario is that Dell, Lenovo, HP, Acer, Asus, Fujitsu and any other company would have to have their own ARM architecture. Otherwise they will be broken up and they will have no choice."

In absolute terms, the market share of ARM-based notebooks is still far behind that of traditional X86 architectures. But in terms of growth rate, from 2020 to 2022, the market share increased nearly nine-fold. Such a horrible growth multiple is due to the fact that the market share was too small, but two reasons should not be ignored.

First, Apple released its own desktop ARM chip: M1 in 2020, and also released three products equipped with this chip: Macbook Air, Macbook Pro and Mac Mini. It's easy to think of Apple switching from MOTOROLA to IBM's Power PC in 1994 and from Power PC to Intel in 2006. As soon as the three products were announced, there was a huge amount of curiosity about how the new chips would perform. The M1 version of MacBook gives full play to the advantages of low power consumption and long battery life of ARM chip. Compared with the Intel version, the noise and battery life are significantly improved.

Second, thanks to the addition of a dedicated multimedia processing unit by Apple in M1, users can obtain significant performance improvement when using optimized specific software.

It's been two years since the M1 was released, and the M2 was released in June this year, and a lot of software has been adapted to the original ARM version of the M1 that required Rosetta translation when it was first released. Under the strategy of combining the soft and hard of Apple, the ARM version of MacBook can meet the needs of more and more people, which is conducive to improving the share of the ARM architecture.

Proprietary chips go mainstream

Cloud processors will increasingly control the entire stack based on each company's proprietary, unique design. "Intel and AMD will again lose market share in these cloud markets," Brazier said. This is a significant change in the structure of the industry, and it has implications for the people who make these processes. "Taiwan Semiconductor is clearly the big winner from this trend."

Brazier said the cost of the public cloud is expected to increase by 20-30% in 2023 due to inflation, currency fluctuations, increased energy bill costs and other factors. Designing proprietary chips that are more efficient at power consumption and processing more data is becoming a trend among U.S. tech giants at a faster pace.

If their chips are made with advanced process nodes below 10nm, there are only two places for them to go - TSMC and Samsung, and the industry consensus is that TSMC's yield is much better than Samsung's. TSMC's Wei Che-jia's response to the 3nm process is to mass produce it later in the fourth quarter, with good yield rates and customer demand exceeding capacity driven by high-speed computing and smartphone applications.

The driver of the semiconductor market

Brian Olsavsky, Amazon's chief financial officer, has just announced layoffs to prepare for a period of "slow growth." Brazier said AWS is telling customers to optimize their cloud, and Canalys has seen an increase in AWS customers who are focused on controlling costs.

As cloud service operators have more purchasing power than ever before, companies like Cisco and HP are finding themselves unable to deliver products on time. "The reason is that cloud processors are gaining preference in semiconductors," Brazier explained. The cloud has become a top customer, with Cisco and HP and other enterprise infrastructure low on the buying priority list."

Now with the consumer electronics and PC markets weak, semiconductor companies will rely more heavily on servers. The bad news, however, is that if half of the cloud server market moves to Arm architecture, companies using X86 architecture will suffer.

In addition to Arm's processors that are expected to break the x86 hegemony, Intel's peer AMD has also been fighting the battle in this new era, and these generations of AMD Ryzen processors seem to be particularly competitive in the notebook space, especially with stable performance and decent battery life, building confidence among Oems and consumers.

According to Digitimes, Intel's share of the laptop market peaked at 82.2% in 2016 (AMD had 17.8% that same year), but it still had 63.5% of the market in Q2 2022. AMD holds 36.4 percent and its position is getting stronger.

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