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Qualcomm shows off first server chip in effort to expand

Qualcomm Inc. (Nasdaq: QCOM), looking for growth outside of the mobile-phone chip market it leads, on Thursday demonstrated a product designed for server computers, an initial step in its push to break into a business dominated by Intel Corp.

The chip contains 24 processing cores designed by Qualcomm for the computers that run corporate networks and are the backbone of the Internet. The chip is in preproduction so potential customers and partners can test it, Qualcomm Senior Vice President Anand Chandrasekher said at an event in San Francisco.

Qualcomm is trying to provide an alternative to Intel processors for operators of giant data centers that provide computing over the Internet, including Google Inc., Amazon.com Inc. and Facebook Inc. These companies build their own computers to run in-house developed software, making them natural seekers of alternative suppliers, Chandrasekher said. Orders from those companies also account for an increasingly large portion of the server chip market.

“There is not a real alternative for them at this time,” he said. “This is a good time for a new entrant to come in.”

Adding partners

Qualcomm announced partnerships with chipmakers Xilinx Inc. and Mellanox Technologies Ltd. as it develops a product for sale. Qualcomm estimates the new market may present a $15 billion opportunity by 2020.

While San Diego-based Qualcomm has kept Intel out of the mobile-phone chip business, it’s facing more competition from MediaTek Inc., small Chinese companies and Apple Inc. and Samsung Electronics Co., which are making their own parts for smartphones. Qualcomm is on course to report its first annual decline in sales since 2009. Chief Executive Officer Steve Mollenkopf is targeting areas outside phones to help Qualcomm grow, saying that its mobile chips have applications in everything from cars to servers.

In going after Intel’s most lucrative market, Qualcomm is taking on an opponent that has crushed its would-be challengers. In the second quarter, Intel had 99 percent of the market for server microprocessors.

Companies such as Applied Micro Circuits Corp. and Advanced Micro Devices Inc. are bringing servers that use ARM Holdings Plc technology-based chips to market in an attempt to loosen Intel’s stranglehold. They have argued that alternatives are needed to help Intel’s customers get better pricing and that ARM designs are more power efficient and cheaper.

Long-term effort

Qualcomm is committed to spending enough to get into the market and knows a return on its investments will take time, Qualcomm President Derek Aberle said at the event.

“It’s going to take multiple years of significant investment before we see the kind of returns that are out there,” he said. “We think we are one of the few companies that can step in and deliver.”

Underlying Intel’s determination to hang onto its position, the world’s largest chipmaker responded to the potential challenge -- before it even fully materialized -- by fielding cheaper and lower-power versions of its own products. That push worked and the Santa Clara-based company has continued take sales from AMD and persuade server makers and buyers they don’t need alternatives.

Intel’s data center division had $3.85 billion of sales in the second quarter, providing 29 percent of the company’s total revenue. The unit contributed 64 percent of operating income.

Qualcomm’s shares rose 1.9 percent to $57.66 at the close in New York. The stock has declined 22 percent this year.

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Qualcomm Inc.

Company Website

5775 Morehouse Dr.
San Diego, CA 92121

Qualcomm Inc. Executive(s):

Irwin Mark Jacobs

  • Founding Chairman, CEO Emeritus

Paul Jacobs

  • Executive Chairman

Tamar Elkeles

  • Vice President

Don Jones

  • Vice President

Don Rosenberg

  • General Counsel

Mark Leslie

  • Vice President, External Affairs

Steven Altman

  • Vice Chairman

Steve Mollenkopf

  • Chief Executive Officer

Derek Aberle

  • President

Navrina Singh

  • Director of Product Management

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SIC - 3663 - ELECTRONIC COMPONENTS, NOT ELSEWHERE CLASSIFIED
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2012