Qualcomm will return to the server market

Qualcomm is preparing to re-enter the server processor market, reducing its reliance on smartphones by tapping into a potential $28 billion market, according to people familiar with the chipmaker's plans, Bloomberg reported.

The company is seeking customers for products from chip startup Nuvia, which it acquired last year, according to people familiar with the matter who asked not to be identified because the discussions are private. Amazon.com Inc’s AWS business, one of the biggest buyers of server chips, has agreed to do an early study of Qualcomm’s products, they said.

Qualcomm Chief Executive Officer Cristiano Amon is trying to transform the company into a broader semiconductor supplier, not just a top maker of chips for smartphones. But his predecessor abandoned an earlier plan to enter the server market four years ago when the company was trying to cut costs to appease investors after staving off a hostile takeover by Broadcom Inc.

This time, Qualcomm owns Nuvia, whose chip designers come from companies such as Apple Inc. Amon bought the business in 2021 for about $1.4 billion, saying the acquisition would help revitalize Qualcomm's high-end products in smartphones and PCs, but Nuvia was originally founded as a technology provider for the server industry.

Qualcomm's return to the server business will require rebuilding trust with potential customers after the last communication. The industry has also changed dramatically in the past few years. Amazon has developed its own processors for servers, but it also buys chips from other suppliers. Startups such as Ampere have also made progress, winning contracts from customers such as Microsoft.

Still, the potential payoff could be huge. A successful push into server chips would mean Qualcomm could sell its products at higher prices. The company’s cellphone SoCs are typically priced in the tens of dollars. The highest-end server processors, on the other hand, cost more than $10,000 per chip.

Spending on cloud computing infrastructure totaled $73.9 billion last year, according to research firm IDC, an increase of 8.8% from 2020.

Data center processors alone generate $28 billion in revenue annually, according to Bloomberg Intelligence analyst Mandeep Singh. “Qualcomm’s reentry into the Arm server market expands its reach into one of the most important growth areas in the semiconductor space,” he said in a note Thursday.

Owners of large cloud data centers have long relied on Intel Corp. for server chip technology. But they are increasingly turning to processors designed by Arm, a major partner for Qualcomm Inc.’s mobile phone chips.

Arm designs already dominate in mobile phones, and they're very low power. Now, power consumption has become one of the most pressing issues in the data center. As server farms proliferate -- and consume vast amounts of electricity -- companies need more efficient chips.

Amazon has met this need by building its own chips based on Arm designs. The e-commerce giant has created multiple generations of its Graviton processor family, which has been proven in real-world applications.

But Amazon still uses chips from Intel, AMD and Nvidia — and Qualcomm sees an opportunity to carve out a niche among those vendors.

Qualcomm last tried this in 2017, when it began selling its Arm-based server chip, the Centriq 2400. It relied on Samsung for manufacturing and claimed to outperform Intel's Xeon processors in terms of energy efficiency and cost. In November of that year, at the public introduction of the server chip series, potential customers such as Microsoft took the stage to express their interest in the product.

But less than a year later, the company's leadership began shutting down the project, and Anand Chandrasekher, the former Intel executive who led the effort, left Qualcomm.

For Intel, Qualcomm's latest move will bring more competition to an industry it once dominated. The company has been racing to bolster its technology and manufacturing capabilities after losing market share to chip companies such as Advanced Micro Devices and Amazon.com Inc.