ARK Disrupt Issue 114: The Server Market, Batteries, and On-Demand Manufacturing

Please enjoy ARK Disrupt Issue 114. This blog series is based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders, and investors. It is designed to present you with the most recent innovation takeaways and to keep you engaged in an ongoing discussion on investing in disruptive innovation. To read the previous issue, click here.

1. The Server Market Is Booming… But Not for Everyone

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ARK Disrupt Issue 114 Server Revenue

The server market enjoyed a record year in 2017: revenue reached $66 billion for the first time while top line growth in the fourth quarter hit 26%, the highest rate in more than a decade. Three product releases drove demand in the second half: Intel’sINTC Skylake CPU for data centers, IBM’sIBM z14 mainframe for enterprise, and Nvidia’sNVDA Volta GPU for artificial intelligence (AI).

The record demand is not benefiting all companies in the data center server market equally. Nvidia grew its share from 1% in 2016 to 3% in 2017 while Intel’s share declined by 100 basis points. Underlying this share shift is a change in the nature of computing: traditional workloads are giving way to deep learning, shifting the demand from Intel CPUs to Nvidia GPUs.

Intel intends to fight back during the second half of this year with deep learning chips from a company it recently acquired, Nervana. But, it will take time for software to catch up to the new hardware and for hardware to hit volume production.

Until then, Nvidia’s share of the server market should continue to grow as artificial intelligence, specifically deep learning, becomes the de facto approach to building new software.

2. Bosch Backs Away from Building Batteries

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In surprising news this week, BoschBOSCHLTD announced that it will dissolve its Lithium Energy and Power Joint Venture and sell the solid-state battery subsidiary, Seeo, that it acquired in 2015. Bosch had some of the most aggressive battery production plans in the industry, having committed €20 billion to a factory with 200 GWh in capacity by 2030 and to the commercialization of Seeo’s solid-state battery by 2020.

While Bosch is the second company to shy away from solid-state batteries, others are investing to overcome the challenges.  A few weeks ago, DysonDYS also dialed back promises to include solid-state batteries in the first version of its EV, but this week, it partnered with SamsungSSNLF, A123AONE, HitachiHTHIY, and NissanNSANY to invest in a Massachusetts based solid-state battery startup. ARK is interested to see if ToyotaTM announces any progress with solid-state batteries as it too has been vocal in its support of the technology.

3. On-Demand Manufacturing Could Disrupt Large Pharmaceutical Companies

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Digitizing organic synthesis will take much of the risk out of the manufacturing of pharmaceuticals, increasing safety by allowing point-of-care manufacturing of cartridges that should decline in cost as they scale.

Historically, chemical manufacturing has required large scale capital spending on facilities that leave companies exposed to significant operational risk. To manufacture small and large molecules, pharmaceutical companies have dedicated each plant to the production of a single product. The safety of each product has been compromised during several steps of the manufacturing process: the transport of raw materials to and from each plant, the storage of materials, complex global supply chains, and long production runs. Beyond safety hazards, the manufacturing process has caused inventory imbalances leading to both shortages and waste. Moreover, when discontinuing a product, pharmaceutical companies have been forced to redesign a chemical plant completely before manufacturing a new product.

In a provocative proof-of-concept, researchers from the University of Glasgow created a method to digitize complex chemical reactions and 3D-print small-scale bioreactors to synthesize and produce complex pharmaceutical ingredients. The researchers used low end 3D printers that cost $2,000 and inexpensive propylene to create the bioreactor modules facilitating on-demand chemical synthesis.

If this proof-of-concept were to become reality, drug creators would be able to manufacture their own pharmaceuticals, not only locally but more efficiently and cost effectively over time. If adopted widely, this technologically-enabled distributed model also would increase competition, putting high cost manufacturers out of business and egregious price hikes out of commission.

The information provided is for informational purposes only. It does not constitute any form of advice or recommendation to buy or sell any securities mentioned. It is intended only to provide observations and views of the author(s) at the time of writing, both of which are subject to change at any time without prior notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on ARK's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance is no guarantee of future results. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.