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Advanced Micro Devices is shedding its SeaMicro unit and getting out of the microserver business as officials continue to look for ways to stabilize the chip maker’s financial numbers.
The decision comes just over three years after AMD spent $334 million to buy SeaMicro, a small company that was making small, dense and highly efficient servers that packed hundreds of Intel Atom and Xeon processors and was aimed at the growing Web scale data centers run by the likes of Google and Facebook.
It also comes about 18 months after AMD officials announced the biggest win for its SeaMicro business when Verizon said in October 2013 that it was basing its new public cloud server and storage infrastructure on SeaMicro’s SM15000 servers and the company’s Freedom Fabric architecture.
However, despite the Verizon win, it no longer made fiscal sense to keep the dense server unit as the company looks to invest in “stickier businesses,” AMD CEO Lisa Su said during a conference call with analysts and journalists April 16 to discuss the vendor’s first-quarter financial numbers.
“Microservers have not developed as we had thought a few years ago,” Su said, adding that AMD will focus its server efforts not only on its x86 and ARM-based chips, but also in innovations in its embedded and semi-custom processor businesses.
AMD had a difficult first quarter, with revenue falling 26 percent, to $1.03 billion, and losses increasing to $180 million. The company was hit by the slowdown in global PC sales—particularly desktops—as well as slowing sales of semi-custom systems-on-a-chip (SoCs), which last year helped AMD generate profits during some quarters after being adopted by Microsoft, Sony and Nintendo for their latest gaming consoles. AMD also saw lower server chip sales, according to officials.
Revenue for the company’s Computing and Graphics business fell 38 percent over the first quarter of 2014, while the Enterprise, Embedded and Semi-Custom segment saw sales drop 7 percent.
Su said the struggles will continue into the second quarter, but added that she is hopeful that new products—including AMD’s second-quarter launch of the “Carrizo” chip for mainstream notebooks and low-power desktops, as well as new embedded and semi-custom SoCs—will help AMD gain some momentum, particularly when combined with the release of Microsoft’s Windows 10 operating system, which will help drive PC sales.
“The second half of the year across the board will be better for all businesses than the first half,” Su said.
Charles King, principal analyst with Pund-IT, said former CEO Rory Read, who took over AMD in 2011, did a good job stabilizing the company and putting in place some solid growth strategies. He and Su also have brought in some good executives. However, the problem, King told eWEEK, is that AMD is up against a large and strong competitor in Intel, and many of the growth opportunities the company has bet on—like microservers—are not growing as quickly as hoped.
“The problems continue,” King said, adding that AMD “would constitute a really good acquisition for someone at this point, though I don’t know who it could be.”
AMD Sheds SeaMicro Microserver Business
Rumors circulated late last month that Apple might be interested in buying AMD, but King said that made little sense, given Apple’s lack of interest in the data center.
What does make sense is AMD’s exiting the microserver business, he said. The hardware technology was good—the SeaMicro SM15000 system housed compute, storage and networking in a 10U (17.5-inch) rack system that offered 64 sockets for AMD’s eight-core Opterons or quad-core Xeons from Intel, 160 gigabits of I/O and more than 5 petabytes of storage. The real prize in the SeaMicro deal was the Freedom Fabric, a 1.28-terabyte supercompute fabric. AMD is keeping the fabric technology as part of its IP portfolio, Su said.
The trouble comes from a chip maker getting into the server business, King said.
“There are inherent problems when a vendor known for doing one thing decides to go into a business that directly competes with those of its customers,” he said.
The decision to drop the SeaMicro business will be a costly one, according to Devinder Kumar, senior vice president and CFO at AMD. Of the $87 million AMD has to pay in charges for the quarter, $75 million is related to exiting the microserver business, he said.
Still, AMD will continue to pursue the server business with both its x86 Opteron servers and its upcoming AMD-based “Seattle” SoC, which is due out later this year, said Su, who took over from Read as CEO about six months ago. The Seattle chip is sampling with hardware and software makers and is due out in the second half of the year.
“It’s clear the x86 server market is a very large market, and one in which we have historically been successful,” she said, adding that AMD “can be successful in the mid-term.”