SeaMicro's Silicon Valley Computers

A break in the space-time continuum must have opened up in Santa Clara, Calif. For there sits the headquarters of SeaMicro, a computer company that actually manufactures computers in Silicon Valley. How 1980 of them.

SeaMicro seems like the brainchild of a public relations whiz in the White House. Its business is making "green" servers that run on power-sipping laptop chips rather than the high-octane, electricity-hungry chips that most data center computers rely on. The Energy Dept. gave SeaMicro a $9.3 million grant last year to help the four-year-old company continue developing its technology.

SeaMicro complements its green credentials with patriotism. Unlike Hewlett-Packard (HPQ), IBM (IBM), and Dell (DELL), whose mass-market servers are often built by Taiwanese firms, SeaMicro produces its technology at NBS, a contract manufacturer in Santa Clara. To get there, turn left out of SeaMicro's headquarters at 5225 Betsy Ross Drive. Make a right onto Bunker Hill Lane, another left onto Patrick Henry Drive, and soon you'll find NBS's 32,000-square-foot manufacturing complex. (If you pass the beaver pelt stand on Great America Parkway, you've gone too far.)

Chief Executive Officer Andrew Feldman says the Made-in-America setup makes business as well as PR sense. "The big guys are using the leverage of suppliers in Asia as their advantage that creates value," he says. Low-cost, overseas manufacturers were a logical choice for the likes of HP and IBM as their sales volumes rose and server designs became standardized. Or, as Feldman brashly puts it, they were a logical choice "when there wasn't any innovation."

Those larger server makers would no doubt dispute Feldman's characterization. Still, it's true that over the past 10 years servers have come to look more alike. Most of them run on IntelsXeon chips, processors that are the Ferraris of enterprise computing.

But why throw a high-performance gas-guzzler at a job that could be done by an economical smart car? Web companies have demands that are different from the typical business; they need to quickly fulfill lots of requests for small amounts of data—the image on a Google map, a status update on Facebook—rather than perform complex calculations on, say, billions of credit card transactions. Companies such as Facebook and Google are looking for low-power systems tailored to this kind of bite-sized Web work, Feldman says, especially as data center sizes grow and energy costs weigh on the bottom line.

Each ice-chest-sized SeaMicro server holds up to 512 Intel Atom chips, the same model found in compact, efficient computing devices such as netbooks and smartphones. SeaMicro surrounds these chips with homemade hardware and software to orchestrate the flow of data across all these tiny engines. The company says its servers can perform Web work just as well as a standard system while using only one-fourth the space and power. "If you buy $4 million of our servers you will save $15 million in three years on power and space costs," says Feldman.

Early customers include eHarmony, Mozilla, France Telecom (FTE), and China Netcom Broadband. Feldman says SeaMicro has sold thousands of systems since it started taking orders last year and had revenue "in the millions" during its most recent quarter. Products command gross margins in the 60 percent range, he says, three times what is typical for servers. That's good news for venture capital firms Khosla Ventures, Draper Fisher Jurvetson, and Crosslink Capital, which have put $40 million into SeaMicro.

Mozilla, which manages the development of the Firefox browser, has used SeaMicro systems for several months. The company has been "pleasantly surprised" by what a dramatic improvement they are over standard servers. "It's an apples-to-oranges comparison," says Justin Fitzhugh, a vice-president at Mozilla.

Feldman says that manufacturing locally will help SeaMicro compete with bigger, deeper-pocketed rivals. The company's engineers constantly experiment with the latest and greatest components in a bid to lower the power consumption and quicken the performance of their systems. They can then take their changes down the road to NBS—less than a mile away—and start testing them in new systems immediately. "You don't have to deal with working across the globe and shipping stuff back and forth," says John Turk, the vice-president of operations at SeaMicro. "You can lose days with systems sitting in Taiwan or China." Turk describes this process as "lean engineering" and says it's the best way for SeaMicro to keep wringing greater efficiency out of its servers in the competition for energy-conscious customers.

NBS has been manufacturing a variety of technology equipment since 2004 and has grown from 20 people to about 300. Its niche is in catering to companies that need to make quick changes to new products. Chief Executive Officer Michael Maslana says NBS did about $75 million in business last year.

When asked if the happy marriage between SeaMicro and NBS will dissolve should SeaMicro hit it big and shift toward mass production, consternation fills the faces of Turk and Maslana. "It's not about us getting big," Turk says quickly. "It's about how do we stay flexible. That is what the big guys don't have."

They may not be as nimble, but the big guys are eyeing SeaMicro's niche. Engineers at Dell have been experimenting with servers based on low-power chips from Via, a small Intel rival. A number of companies have started looking at building servers using ARM chips—a common processor in cellphones—as a cheaper, more efficient option than the Intel Atoms that SeaMicro uses. "It's a potentially disruptive idea," says James Hamilton, a vice-president and data center guru at "There are a few leading thinkers in the hardware development community that are deeply invested in ARMs and have [prototype servers] running." SeaMicro, too, has been testing ARM-based servers.

The fate of server startups is well-documented: They come up with an attractive new idea, plug away for a few years, and then watch as the big guys mimic the technology. SeaMicro hopes to escape that fate in part by keeping its promises. "So far they have delivered everything they said," says Mozilla's Fitzhugh, "which is pretty rare for a hardware company."

The bottom line: Startup SeaMicro says it can compete with bigger rivals by selling efficient, low-power, made-in-America servers geared for Web work.

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