Intel Faces Threat from Tiny Chipmaking Upstart

Even as it reels from the slowdown in personal-computer chip sales, Intel (INTC) faces a new and worrisome threat from a growing group of rivals led by a puny Sunnyvale upstart.

Anticipating a tectonic shift in the way data is shuttled across computer networks, Applied Micro Circuits three years ago began developing an energy-saving server chip that targets the needs of Internet-based companies such as Facebook and Google (GOOG). Now the product is nearing the market, and Intel, which dominates this part of the chip industry, is preparing for battle.

"Applied is a significant threat," said Raymond James analyst Hans Mosesmann. Even though its $195 million in annual sales and 649 employees are dwarfed by Intel's $53 billion and workforce of 105,000, Intel, he said, "will lose market share."

The competition comes at a tough time for Santa Clara-based Intel, a storied Silicon Valley company that has led the PC-chip business for decades. Its sales surged for years but have flattened out in recent quarters as consumers shunned PCs for smartphones and tablets.

So Intel isn't going to give up its server-chip business without a fight.

Those chips make up most of Intel's data-center products, which account for 20 percent of its total sales -- $10.7 billion last year. That money is even more crucial amid the slowdown in its sales of PC chips, which provide 64 percent of its revenue. Yet analysts say Intel's iron grip on the server market, where it sells 90 percent of the brainy microprocessors, could weaken with the shift to cloud computing.

So to shore up those sales the company just announced a new line of energy-efficient server chips. Although spokesman Radoslaw Walczyk disputed speculation that the new chips are meant as a shot across Applied Micro's bow, he acknowledged, "We're taking every competitor very seriously," and added, "We're not...

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