Intel’s Atom Server Chip a Broader Strategy, Says Wells; AMCC the One to Beat, Says Wunderlich

As I mentioned earlier today, Intel‘s (INTC) announcement yesterday of a new family of server chips, dubbed “S1200,” which are supposed to be more energy-efficient for large-scale data center servers, has sparked some debate among analysts as to whether the company is ahead of the competition using designs from ARM Holdings (ARMH), including Applied Micro Circuits (AMCC),�Advanced Micro Devices (AMD), and Nvidia (NVDA).

The most positive remarks today came from Wells Fargo‘s David Wong, who rates Intel shares Outperform, with a $28 to $33� valuation range, noting that Intel has signed up Hewlett-Packard (HPQ), Dell (DELL), and China’s Huawei to use the chips.

The chips, starting at $54, are cheaper than Intel’s existing server processor offerings, but Wong thinks price difference can be more than made up for by volumes sold of the chips:

Intel presented a slide showing HP data indicating that the Atom S1200 chips deliver higher performance per watt than Intel�s Xeon E3 counterparts in light scale-out applications, while more compute intensive applications see higher performance per watt from Intel�s Xeon E3 processors than from the new S1200 processors. Another slide showed an example of how Intel might receive around $32,900 in revenue for a Xeon LV E3 server rack and around $35,800 in revenue for an Atom S1200 based server rack, suggesting that the ASP difference between the Xeon and Atom processors is more than offset by the 5x number of Atom processors per rack in a typical server rack configuration.

Intel has a technology edge, Wong believes, given its ready support for 64-bit instructions:

In offering a 64-bit Atom processor today, we think that Intel has a 1-2 year lead over any
competition that might come from an ARM-based processor. We do not expect
widespread availability of 64-bit ARM-based server chips till 2014 at the earliest.

More important, however, to Wong, is that investors have failed to grasp how these chips, based on Intel’s “Atom” architecture, fits into a broader strategy for Atom, which was originally just a smartphone chip:

This latest introduction of Intel�s Atom server chip is another step in the buildout of Intel�s strategy for Atom. Although Intel initially targeted netbooks as the main market for Atom, the company�s long-term strategy was always to add different types of circuitry to the Atom processor core to develop different types of system-onchip (SOC) products for various markets.