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AppliedMicro sees future in low-power server chips

By Noel Randewich

SUNNYVALE, California (Reuters) - Chipmaker Applied Micro Circuits Corp believes selling low-power processors for cloud data centers run by the likes of Facebook, Google and Amazon.com Inc could account for half of its business within three years.

AppliedMicro is one of a handful of chipmakers betting that energy-efficient microservers will become widely used in data centers and it appears to have an early advantage among rivals keen to challenge Intel.

Chief Financial Officer Robert Gargus told Reuters in an interview on Thursday he has been increasingly impressed this month with performance test results on new chips that include 64-bit features widely used in servers, a first among its competitors relying on technology licensed from Britain's ARM Holdings.

ARM chips lack horsepower but data centers that combine many of them instead of just a few heavy-duty Intel processors may provide more computing power using less electricity.

Gargus said AppliedMicro, whose stock has surged almost 80 percent since September, is on track to see revenue from microserver chips next year.

Those chips could account for as much as half the company's business within three years as leading-edge Internet companies like Facebook seek ways to reduce energy bills, followed by more traditional companies like big banks, Gargus said.

"The question isn't if but when. It comes down to, what's the adoption curve?" he said. "We're hoping that the (total cost of ownership) equation for this is compelling enough that people move fairly rapidly, but it's hard to predict."

AppliedMicro already sells chips for wifi routers, cellphone base stations and other networking and storage devices. Analysts on average expect it to have $195 million revenue for the fiscal year ending in March, according to Thomson Reuters I/B/E/S.

CHEAPER POWER BILLS

As the proliferation of smartphones and other connected devices drives demand for more data processed in remote "cloud" data centers, major Internet companies are seeking ways to cut energy bills, which Gargus said can easily account for half a data center's operating costs.

ARM Holdings' energy-efficient chip technology has become ubiquitous in smartphones and tablets. Now the UK company and some of its partners are taking aim at the server market, long dominated by Intel.

Microservers accounted just 0.2 percent of total server shipments in 2011, but they are expected to grow to more than 10 percent of the market by 2016, according to IHS iSuppli.

AppliedMicro is working on two generations of chips: one built at 40 nanometers, which still needs to be tested by customers, and another more advanced processor at 28 nm.

Anxious to maintain its domination of the server market, Intel in December launched its own low-power data center chip, saying they have been selected for over 20 upcoming products focused on microservers, storage and communications.

PC chipmaker Advanced Micro Devices and Austin, Texas-based startup Calxeda are also developing microserver chips but neither are as far along as AppliedMicro on 64-bit technology typically used in data centers.

Larger competitors Qualcomm and Samsung Electronics, which both use ARM's technology to make chips for mobile gadgets, could also move into the microserver market and create a formidable challenge for AppliedMicro, analysts say.

(Reporting By Noel Randewich; Editing by David Gregorio)

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