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Intel braces for threat from rivals

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

INTEL 09-15-13Anticipating a tectonic shift in the way data is shuttled across computer networks, Applied Micro Circuits Corp. three years ago began developing an energy-saving server chip that targets the needs of Internet-based companies such as Facebook and Google.

Now the product – dubbed X-Gene – 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.”

Intel’s server chips make up most of its 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 said, “We’re taking every competitor very seriously,” and added, “We’re not going to make it easy for them.”

For years, servers – which provide data and other resources to computers on networks – processed huge amounts of information, requiring the powerful chips that are Intel’s specialty.

But with the cloud model, in which data is accessed from Web-based servers, the machines often do smaller jobs for each customer. That makes it possible to use less powerful chips that also gobble less electricity, a huge plus for server operators.

Applied Micro’s low-power processors use a design from the British firm ARM, whose architecture already is used in the vast majority of smartphones and tablets.

Others developing ARM server chips include Advanced Micro Devices, Nvidia, Cavium and Samsung Electronics.

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