Advanced Micro Devices (NYSE:
AMD) said Wednesday it would buy SeaMicro for about $334 million to boost its low-cost server offerings.
The acquisition of SeaMicro, which is backed by leading venture capitalists including Khosla Ventures and Draper Fisher Jurvetson, would help AMD deliver cost-efficient server technology to its original equipment manufacturers (OEMs) serving cloud-centric data centers.
"We do believe that power efficient servers sold into cloud applications are driving growth in the server market," Jefferies analyst Mark Lipacis wrote in a note to clients.
SeaMicro's intellectual property is based on three elements: 1) I/O virtualization technology, which enables it to remove all but three kinds of chips in a server, the multi-core processing unit (MPU), DRAM and a custom chip (ASIC), 2) TO or Turn-it-Off technology, where the ASIC can reach into the MPU and turn off certain circuits, and 3) A supercompute style fabric that enables a high speed connection between MPUs.
AMD's revenue largely depends on PCs and tablets. However, a recent data from market research firm Gartner showed worldwide PC shipments slid 1.4 percent from last year to 92.2 million units. Gartner had projected a 1 percent decline.
AMD, which lost $177 million in Q4, said in November, they will cut 1,400 jobs, or about 10 percent of its global workforce as part of a restructuring plan to improve productivity and enhance growth as it strives to align with key industry trends.
In order to diversify its revenue streams, AMD is now focusing more on servers and the red hot cloud-centric data center server market. SeaMicro noted that it was seeing most success with companies that use servers in data centers under heavy workloads, and consider servers to be a core part of their business. Longer term, the company expects to have increased success in high performance computing.
SeaMicro said current systems featuring its technology typically use one quarter the power and take one sixth the space of traditional servers with the same compute performance, yet deliver up to 12 times the bandwidth per core.
For the full year 2011, worldwide server revenue increased 5.8 percent to $52.3 billion, and worldwide unit shipments rose 4.2 percent to 8.3 million units, according to IDC. IDC has predicted that cloud data centers would be the fastest growing part of the server market through 2015.
SeaMicro currently offers Intel (NASDAQ:INTC)-based processors including Sandy-Bridge-based Xeon processors and Atom in its server systems. SeaMicro would continue to offer Intel-based systems to distribution and, at the same time, offer AMD's Opteron-based processors to OEM customers.
"Ultimately, we would expect AMD to adopt the SeaMicro architecture and integrate the fabric technology into AMD MPUs," Lipacis said.
AMD plans to offer the first AMD Opteron processor-based solutions that combine AMD and SeaMicro technology in the second half of 2012. AMD said it remains firmly committed to its traditional server business, and will continue to focus and invest in this area.
"The acquisition makes us incrementally positive on the stock, as we believe that longer term, it could drive sales of high margin server products from AMD," Lipacis said.