Ian Drew, executive vice-president of marketing at ARM Holdings (ARMH), a Cambridge (U.K.)-based company that makes semiconductors powering a majority of the smartphones, tablets, 70 percent of the world's hard drives, and half the world's printers, is on a whirlwind tour of Silicon Valley. And what everyone (including me) wants to talk to him about is servers, or rather low-power server chips that can power the data centers of tomorrow.
With this foray into the fast-growing data center business, the company, which can trace its roots back to Apple Computer, is slowly becoming a bane to Intel's existence. And the funny thing is, it does so not by making chips, but instead it develops technology and licenses it to all comers.
Some special companies—Qualcomm (QCOM), Marvell (MRVL), and Infineon (IFX)—get access to all of ARM's entire technology stack, so they can build their own chips, which in turn compete with Intel. The latest company to sign up: Microsoft (MSFT), the longtime partner of Intel (INTC) and the other half of the "Wintel" monopoly. What Microsoft will do with ARM's technology remains to be seen, but it is a notable move nonetheless. It is a sign the company is killing it.
Check out its American Depositary Receipts: At the close of trading July 29 they were up nearly 165 percent over the past 12 months.In the second quarter of 2010, the company's revenues jumped 42 percent to $150.3 million, vs. $105.5 million in the second quarter of 2009. Earnings per share leaped 147 percent to $2.34 a share, vs. the 95 cents a share it earned a year earlier. From the looks of it, things seem to be going well for these guys.
The main reason ARM has done so well is because it has focused on developing low-power technologies that it licenses in turn to others, thus eschewing the headaches that come with manufacturing and selling your own chips. More important, ARM as a company sits at a unique position in the technology ecosystem. Because it licenses its chip technology to others, it has a good idea of what kinds of products are coming to market, how well certain types of products are doing, and, more important, where the industry is headed. In short, it talks to chipmakers, device makers, and these days even software companies that are developing software for these consumer devices.
And what Drew and his cohorts are seeing is a radical revolution in the data centers. "While the x86 world focused on pure megahertz, we have focused on the megahertz per milliwatt," Drew said during our conversation July 29. "We focus on quarter-to-half milliwatts as a key metric." Most of the new devices such as the iPhones don't have heat sinks in them, he joked.
"If you look at our heritage (of low-power chips), it makes perfect sense for us to be looking at the servers and the data centers," said Drew. With "cooling" making up nearly half the capital expenditure and almost two-thirds of the operation expenses, Drew said power is going to be a bigger part of the conversation.
"Everyone is using the Web, and the Web is more demanding today, which means all of the stuff is going to run through data centers," he noted. "Two things are very clear: There is going to be a lot of data and need for less power." By getting the world to buy more edge devices (iPhones, iPads etc.), ARM is at the same time boosting demand for back-end computing infrastructure. Now, by diversifying into the data center server business, it can make more money selling its low-power chip technology to server makers. In other words, ARM wins on both sides of the trade.
The news shouldn't come as a surprise to our readers, since I profiled Smooth-Stone, one company trying to build low-power servers earlier this month, and in that same post pointed to ARM's server ambitions.And it's not just startups that are interested in using the low-power ARM architecture inside data centers, either.Google recently acquired a secretive startup called Agnilux that was rumored to be making a server with the ARM architecture.
We also reported on a Microsoft job listing that sought a software development engineer with experience running ARM in the data center for the company's eXtreme Computing group.For the past couple of decades, Intel's x86 chips have gained dominance in the data center, but as power considerations begin to outweigh the benefits of a cheap, general purpose processor, other chipmakers have started to smell blood.Nvidia is pushing its graphics processors for some types of applications, while Texas Instruments is researching the use of DSPs inside servers.
But don't expect this to happen overnight, Drew cautioned. "We are going to see some pilots over next year, but this is a long-term initiative." He believes that this long, continuous transition to lower-power server chips is going to take between three to five years. When I asked Drew what are those pilots, he declined to comment. From our reporting, we can easily tell you Microsoft, Smooth-Stone, and Marvell are experimenting with ARM-based server processors.
And while ARM tries to build a server business, the company, Drew said, has plenty on its plate. For instance, the upcoming/next-generation Cortex-A class processor code-named "Eagle," which is likely to help redefine the smartphone landscape again.
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