BMO Capital semiconductor analyst Abrish Srivastava today started coverage of chip maker Applied Micro Circuits (AMCC) with an Outperform rating, writing that the company’s decision to start making chips for the server market in competition with Intel (INTC) increases the attractiveness of the stock’s risk and reward trade-off.
Says Srivastava, “Although it will take time and the transformation the company is embarking on is not without its risks, ranging from having to establish credibility in a new market to having to deal with that 80,000-pound gorilla in the market, we believe the existing business offers downside support for the stock.”
Applied is one of the first companies to design and market a 64-bit server chip based on technology from U.K. chip giant ARM Holdings (ARMH). While licensees of ARM dominate mobile computing, Intel has held sway in high-volume shipments of server microprocessors, a fiefdom it is expected to defend with its forthcoming �Romley� microprocessor. But some server. vendors, including Hewlett-Packard (HPQ), have said they will ship servers using chips from ARM and its partners.
The key to taking on Intel may be the rise of specialized types of servers, writes Srivastava, which may in turn be better suited to being built around chips based on the technology from ARM:
However, with the growth of mobile users, multimedia traffic, social networking, and cloud deployments, workloads on servers are changing. More computing workloads are shifting from structured, complex data to larger amounts of unstructured data. And, to efficiently meet the requirements of new workloads, we believe that a wider variety of servers will evolve, including application specific servers. We believe some of these server types can be better addressed with an SOC approach.
AMCC shares this afternoon are up 28 cents, or 4%, at $7.08.
Previously: AMCC: Take-Out Potential on Cloud Ambition, Says Wunderlich, December 15th, 2011.
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