Applied Micro ships microserver chips in challenge to Intel

By Noel Randewich

SAN FRANCISCO (Reuters) - Applied Micro Circuits has begun shipping a new kind of low-power server chip that might challenge heavyweight Intel in cutting-edge data centers.

The Sunnyvale, California, company disappointed Wall Street on Tuesday with first fiscal quarter revenue and second-quarter revenue outlook that missed expectations due to a declining legacy business, sending its shares 4 percent lower after hours.

But Applied Micro Circuits also announced it is shipping its new X-Gene "microserver" chips, made with intellectual property licensed from ARM Holdings, whose low-power technology is widely used in smartphones.

In the quarter that ended in June, Applied Micro Circuits recognized its first revenue from the chips - about a $1 million - and the company said it expects "meaningful" revenue from the chips in the quarters ending in December and March as shipments build.

"There is backlog today on the books for X-Gene, both in the September quarter and December quarter, as well as the March quarter," Chief Executive Officer Paramesh Gopi told analysts on a conference call.

While microservers have yet to be meaningfully adopted, proponents say data centers can be made more cost effective and energy efficient by using them instead of Intel's brawny server chips.

Intel dominates the server market and it stands to lose if server chips based on a rival architecture catch on, even if only a few percentage points of market share.

"While we don't take any competition lightly, the much-hyped threat of ARM servers getting any significant market segment share any time soon has been vastly overplayed," said Intel spokesman Bill Calder.

In January, Facebook Inc hardware guru Frank Frankovsky lauded low-power server technology and said he looked forward to greater choice of processors.

Microservers at first will be most suited to data centers run by major Internet companies and for use in high-performance computing, proponents say.

Intel executives in the past have said microserver chips being developed by Applied Micro Circuits, Advanced Micro Devices and other small rivals were unproven and not a serious threat to its server chip business.

In the past couple of years, Intel has launched its own low-power chips, designed with its own architecture, in anticipation of a potential move toward microservers by major Internet players like Facebook and Google Inc.

(Reporting by Noel Randewich; Editing by Cynthia Osterman)