AMD-SeaMicro Deal: Analyst's Good News, Bad News Scenario

AMD recently unveiled plans to acquire microserver vendor SeaMicro in a $334 million deal, a move that the chip maker said would broaden its footprint in the low-power and cloud computing server space.

But according to an analyst report from J.Gold Associates, the acquisition may turn out to be a double-edged sword.

On the one hand, the report noted that the acquisition of SeaMicro positions AMD as a vendor in the increasingly lucrative low-power server space. By incorporating SeaMicro's application-specific integrated circuit (ASIC) technology that delivers connectivity "fabric" at the silicon level, AMD will be able to connect and manage parallel processing elements on smaller server boards.

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The deal also opens up the possibility of AMD server chips becoming more energy-efficient, according to the report. While AMD already has its own line of low-power Opteron server chips, SeaMicro's fabric technology, to which AMD will have access upon the closing of the deal, can be leveraged with any chip architecture, including that of low-power leader ARM.

The J.Gold report also said that the acquisition finally "allows AMD to poke a finger in the eye of Intel." SeaMicro today builds many of its server products around Intel's Atom and Xeon chips. But in light of the deal, the report projected that many of these will be replaced with AMD chips over the course of the next year.

Curt Cornum, vice president of infrastructure solutions at Insight, a Tempe, Ariz.-based solution provider and AMD partner, said he is excited about the acquisition, as it allows him to offer clients a new option in the low-power server and cloud computing space.

"AMD's purchase of SeaMicro will give us a creative alternative for designing and delivering high-density, low-power computing solutions for those clients that are looking to consolidate their current server footprint and/or move into a private cloud environment," Cornum said.

Roger Singh, CTO of Scalar Decisions, a Toronto-based solution provider specializing in data center design, deployment and management, shared a similarly positive view.

"We had just signed SeaMicro as a vendor partner within the last eight weeks. Their lower-power servers were of particular interest to us for solving cooling issues that a number of our customers were experiencing in their data centers," Singh said. "We were surprised at the acquisition of SeaMicro by AMD; however, we still see a great opportunity for their technology."

But the J. Gold report did offer a caveat, saying "not all is rosy" for AMD. For starters, the deal positions AMD as a potential competitor to some of its largest OEM customers, including Hewlett-Packard and Dell, which also offer low-power server solutions. What's more, AMD may find that the server hardware business doesn't yield as high a margin as it might have hoped.

"Hardware sales are a traditionally high-volume but low-margin business, and it’s not clear that this space will ultimately be profitable for AMD," the report said.