AMD's $334 million purchase of cloud microserver maker SeaMicro was all about nudging its way into a hot market at Intel's expense.
A day after AMD's surprising purchase of SeaMicro, analysts were largely gushing about the deal. Meanwhile, new AMD CEO Rory Read showed he's willing to make large strategic bets. The rationale for AMD goes like this:
- AMD can put its chips into SeaMicro gear, which until today has revolved around Atom and Xeon processors from Intel.
- The company has an outlet for its server chips and can validate AMD's power/performance technology.
- There's channel risk since partners HP and Dell make microservers, but it's manageable.
- AMD is looking for double-digit server market share, up from about 6 percent today. To make that jump requires a few big bets.
Read said on a conference call:
This is AMD's time, and we'll create our first list of value creation by becoming a solid execution engine and delivering on our commitments. At the same time, we will drive a second lift of value creation by positioning ourselves to capture the opportunity this market inflection point brings. That is exactly what the acquisition of SeaMicro helps us to do. We will embrace these changes in the market and seize the opportunity to step out of the shadows and lead.
For server buyers focused on dedicated cloud computing AMD's move is good news. You want AMD to be aggressive and push Intel on pricing somewhat. It's unclear whether AMD's SeaMicro bet will work, but it's a bold move that opens up a new market.
Analysts were generally impressed with the move. Here's a sampling of comments.
Oppenheimer analyst Rick Schafer said:
We like the deal and see it providing a spark to the AMD story. The AMD/SeaMicro combination presents a potential threat to Intel's server dominance while upping the competitive ante vs. fellow ARM-based server players.
Williams Financial analyst Cody Acree said:
SeaMicro should help AMD accelerate its share gains in the highly lucrative, rapidly expanding, server market. Cloud computing and data centers are driving the segments growth and low-power combined with high-performance are keys to winning market share. We expect SeaMicro’s existing customers, who are using Intel’s chips today, will shift to AMD, over time.
Barclays Capital analyst C.J. Muse said:
Challenges remain as AMD balances servicing SeaMicro’s existing customers with integrating own chips with SeaMicro. Other concerns remain around Opteron’s ability to scale <30W and competition with its own customers.
The obvious issue that looms for AMD is channel conflict. SeaMicro competes with Dell, HP and IBM. If AMD sells SeaMicro servers, it's likely that Dell and HP will think twice about using the chipmaker in its gear.
"The acquisition appears to put AMD at odds with current system level customers. If AMD decides to back away from selling servers to avoid competing with its OEM customers, SeaMicro could represent a high-priced IP acquisition," said Schafer.
Read, however, downplayed the potential conflict. "AMD is firmly committed to bringing interesting and capable, advanced technology to our customers and partners, in order to help them win in the marketplace. We will not compete with our customers," he said.
- SeaMicro brings a very high density Xeon server to the datacenter
- SeaMicro teams with Intel, Samsung on fabric-based Xeon micro server
- SeaMicro ups Atom-based server ante: 6 dual core servers in 5 x 11 space