AMD Acquires Cloud Server Maker SeaMicro for $334M USD

AMD Acquires Cloud Server Maker SeaMicro for $334M USD

Advanced Micro Devices, Inc. (AMD) has struggled mightily in the server market in recent years, seeing its market share fall from nearly 15 percent in 2007 to less than half that — roughly 6.5 percent in 2011.

I. AMD Server Division — In Need of a Turnaround

AMD can try to write off part of its struggles to rival Intel Corp. (INTC) using anti-competitive techniques to squelch its performance during its strong years in the middle of the last decade, a big part of the troubles have come due to AMD’s trailing die shrink timing, which has not improved since it spun off its fabs.  While AMD finally dropped a new architecture (Bulldozer) in Sept. 2011, it disappointed in clock speeds and power performance — something that may be attributable to die shrinks.  Difficulty getting to 32 nm may have left AMD with too little time to thoroughly test and refine the new cores.

Approximately 21.89 percent of AMD’s market share is tied up in its server sales, so clearly this is a major issue for the company and its shareholders.  AMD desperately needed a new tactic.  While allowing competitive interplay between Taiwan Semiconductor Manufacturing Comp., Ltd. (TPE:2330) and GlobalFoundries in die shrinks may be a potential long term solution, AMD needed something more immediate.

That’s why the news of its acquisition of SeaMicro for $334M USD (a mix of $281M USD cash and stock) is a bit surprising, but a bit unsurprising.  The small 80-person Silicon Valley server maker is known as a premium maker of highly dense and power-efficient servers.  It sells heavily to large-scale cloud computing businesses.

AMD’s stock price is heavily dependent on server performance. [Image Source: Trefis]
II. Meet SeaMicro 

The move is also a boon to Santa Clara, California manufacturer NBS.  Unlike Apple, Inc. (AAPL), Hewlett-Packard Comp. (HPQ), Dell, Inc. (DELL) and others, SeaMicro doesn’t have its servers assembled by Chinese laborers working under sweatshop like conditions.  It’s made in America, by blue collar workers earning a respectable living.

While it only spends a tenth of the research and development budget (~$50M USD per year) as Dell or HP, SeaMicro’s product is viewed as very competitive from a technology basis.  But SeaMicro can work intimately with its American manufacturing partner, building prototypes, trialing optimizations, and working out bugs before production hits.

SeaMicro makes its servers in California — not China.  It contracts NBS, a small local manufacturer (pictured). [Image Source: Ariel Zambelich/Wired]
All of this is good news for AMD; as SeaMicro’s strength in terms of power and density could offset its weaknesses in power performance, while accentuate its strengths in highly-threaded performance.

SeaMicro currently exclusively sells Intel-based servers — a mixture of Xeon (Sandy Bridge) based tightly-packed 10 RU designs and mixed 10 RU designs incorporating Intel Atom chips for lighter workloads.  The Atom servers use the dual-core 64-bit Atom N570 chip (8.5W TDP).  SeaMicro’s unique 10 RU form factor squeezes one to two tower racks into a single compact box-like form factor.

SeaMicro makes compact 10 RU “box” servers. [Image Source: SeaMicro]
AMD pledges — for now — to continue to make Intel-based SeaMicro servers.  But it states that special AMD Opteron-based designs will be released before the end of the year.

SeaMicro claims four-fold power reduction and six-fold space reduction by eliminating the typical busy server chipset to just three chips, via proprietary interconnect technology.

SeaMicro’s server boards drastically slash space and power via custom chipsets.
[Image Source: SeaMicro]
The approach is rather different from the more traditional designs of SeaMicro’s primary competitors.

III. Folding in Piledriver, APUs, GCN GPUs, ARM into Thread-Shredding Beasts

In the long term this deal makes a lot of sense.  AMD, given its scant stake (and given SeaMicro’s modest market share) can likely phase out Intel’s designs.  In cloud workloads Bulldozer and its successor Piledriver could truly shine in the one area AMD currently beats Intel — thread performance.  

Look at AMD’s Feb. 2012 roadmap, there were hints at the pending acquisition, which SeaMicro CEO Andrew Feldman says happened “unbelievably quickly.”

AMD could also drop in Hondo (ultra-low power) or Brazos 2.0 (low power) cores in 2012.  Then in 2013 it can follow with Temash (ultra-low power) and Kabini (low power). 

The Brazos C-50 and C-60 chips already are on par with the N570 in a dual-cores performing at 9W, though they lag in clock speed (1.0 GHz).  But recall, that these chips have a beefier GPU than Atom.  

One possibility is that AMD may deliver variants of its low power cores without the GPU.  Alternatively, once it can incorporate its new compute-friendly Graphics Core Next GPU architecture, it could use on-APU GPU computing to handle cloud workloads.

And AMD has stated it may even adopt ARM designs, which means that SeaMicro could be soon travelling down the road Dell and HP are currently exploring [1][2].

Assuming AMD explores these tracks thoroughly, its new subsidiary could soon be producing some sweet thread-shredding mixed designs.