Qualcomm Discloses Plans to Sell Chips for Servers -- Update

By Don Clark 

Qualcomm Inc., the biggest supplier of chips used in smartphones, said it would enter the market for chips used in server systems.

The company confirmed the long-expected move during a meeting with analysts in New York.

Qualcomm, which uses processor technology licensed from ARM Holdings PLC, follows a handful of other ARM chip suppliers that are trying to offer server chips.

"We are engaged with customers," said Steve Mollenkopf, Qualcomm's chief executive. "It will take us a while to build this business, but we think it is an interesting opportunity going forward."

He didn't disclose specific product plans.

Intel Corp., which uses a technology called x86, dominates the market for chips used in servers. Advanced Micro Devices Inc., which uses the same technology, has lately accounted for less than 3% of unit shipments of such chips.

Companies that make and buy servers have long expressed a desire for alternatives to Intel's chips, singling out ARM technology for features that include low power consumption. But the arrival of ARM-powered servers has taken longer than expected, in part because some suppliers didn't initially offer the 64-bit capabilities that server software often requires.

Most of the interest in servers based on ARM chips comes from operators of big websites, which can tailor their servers and data centers to handle specific workloads, Mr. Mollenkopf said.

Qualcomm showed a video quoting Jay Parikh, Facebook Inc.'s vice president of infrastructure engineering, expressing excitement at the prospect of Qualcomm joining its potential suppliers of server chips. "Qualcomm-based ARM servers gives us the ability to rethink the way that we have built certain parts of our infrastructure," he said.

The social network has previously expressed interest in ARM-based options.

Mr. Mollenkopf estimated the chip market Qualcomm is targeting could generate $15 billion in revenue by 2020.

Other companies that have disclosed plans for ARM server chips include Applied Micro Circuits Corp., Advanced Micro Devices Inc. and Cavium Inc. Hewlett-Packard Co. in September began selling servers powered by Applied Micro's chips under an effort called Project Moonshot.

Patrick Moorhead, an analyst with Moor Insights Strategy, said Qualcomm may lack some technologies in fields, such as high-speed networking, that are needed in servers. But Qualcomm sells chips in much higher volumes than the other ARM-based entrants, giving it major advantages, he said.

"Clearly they are the largest and most capable of being able to do something in this area," Mr. Moorhead said.

Qualcomm executives touched on many other topics during the analyst meeting, including an antitrust investigation in China. They didn't disclose new details about the investigation, but expressed confidence Qualcomm will put the matter behind it in 2015.

The company projected its average annual revenue growth rate at 8% to 10% over the next five years, adding that it expects earnings per share to grow faster than revenue. Qualcomm shares recently were trading at $70.81, down 1.67%.

Write to Don Clark at [e-mail]

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