Intel will lead a $75 million equity investment in Mirantis, a little-known startup specialising in open-source cloud software, and will spend another $25 million on bolstering its own resources for working with Mirantis-type products, according to several people familiar with the deal. They declined to be identified in order to maintain relations with Intel and other companies.
Intel was part of a $10 million investment round in the company in 2013 and last year joined another group of Mirantis investors.
But in anointing the startup with more of its investment money, Intel, based in Santa Clara, California, is doing what a number of older tech giants have done in recent years: rely on a young, nimble company to help it remain competitive in a fast-growing market.
The Intel investment in Mirantis also shows how old alliances among tech companies are changing into more nebulous combinations of partnership and competition – co-opetition, as it is often called -driven by what appear to be permanent changes to the industry.
Since April, five of the six companies that Cisco Systems has acquired or has announced its intentions to acquire have been in cloud systems. EMC, a tech giant that specializes in storing data, has for years owned a company called VMware, which makes software that is integral to cloud computing technology; now both EMC and VMware have invested in Pivotal Software, which works on cloud products.
Enterprise computing, as tech for business is called, has for years consumed about three-quarters of the $1 trillion of annual worldwide expenditures on technology. Intel enjoyed being the biggest chip supplier by a wide margin to that diverse market.
But the advent of clouddriven businesses like Google, Microsoft’s Azure and Amazon Web Services, or AWS, which rents cloud capabilities to businesses, is shrinking the number of companies that would buy or even build machines using Intel’s server chips.
“When you sell semiconductors to just a few cloud providers who buy at giant scale, you can be at the mercy of an AWS,” said Lydia Leong, an analyst specializing in cloud computing at the information-technology research firm Gartner.
Leong estimated that by the end of this year, one-fifth of the applications that companies build will be made on cloud systems, a number that she said would rise quickly.
“Google is already in the top five server manufacturers -they can have power over Intel.” In other words, big customers can demand lower prices, and like any company, Intel does not want to rely on a handful of customers, particularly because it does not dominate the market for chips that go into smartphones the way it once did the market for chips that run PCs.
Intel’s server business is well worth protecting. In the last quarter, Intel’s PC chip business shrank 14 percent from a year earlier, to $7.5 billion, while data center chips, Intel’s second-largest segment at $3.9 billion, grew 10 percent in the same period.
Mirantis could be a hedge against that shrinking pool of customers for server chips. Mirantis software is a so-called open-source product; the same kind of software is also produced by Hewlett-Packard, Dell, IBM, Cisco and others. It enables about 50 computer servers to function in concert, creating one flexible machine, but Intel wants Mirantis to eventually raise that to 1,000 servers.
The hope is that this software will make it easier for more companies to develop cloudcomputing systems. And among restive startups like Mirantis, there is an increasing sense that, now that the serious money is moving around, there are plenty of opportunities to work with giants both inside and outside the tech industry.
“Companies like AT&T and Goldman Sachs have realized that their future businesses are all enabled by software in the cloud,” said Adrian Ionel, the chief executive of Mirantis. “It creates a lot of opportunities for new companies like us, because the old enterprise companies can’t help them there.”
Mirantis, based in Mountain View, California, has 750 employees, about 600 of whom are engineers who focus on improving its cloud operating system.
In addition to cash, Intel can also use its marketing muscle, and perhaps find some new allies. A few weeks ago, Intel announced that it was working with Google on software that would make it easier to deploy and manage applications across a global cloud network.
And Google is also working with Mirantis, said Craig McLuckie, product manager on the Google cloud. Other big companies, like Ericsson, the world’s biggest telecommunications equipment provider, are also investors. Ericsson is also a Mirantis customer.
Intel has also invested a reported $700 million in Cloudera, a startup focused on data analysis. Cloudera looked as though it could work well in cloud systems, said Bryant, of Intel. The more people store and analyze data, Intel figures, the more they will consume Intel’s chips to do the analysis.
“We’re seeing a very major transition,” Bryant said.