IBM Gets Allies to Chip Away at Intel; Google, Others Join Effort to Break Big Blue’s Power Designs Out of a Niche

August 5, 2013, 8:35 p.m. ET

IBM Gets Allies to Chip Away at Intel

Google, Others Join Effort to Break Big Blue’s Power Designs Out of a Niche


International Business Machines Corp. IBM +0.17% has enlisted Google Inc.GOOG -0.17% and some other high-tech allies for a collective effort to catapult an IBM chip technology out of a shrinking niche. The alliance the companies plan to announce Tuesday would allow many companies to license IBM microprocessor designs—based on a technology dubbed Power—that are now only found in Big Blue’s own server systems. Licensees could incorporate IBM-designed circuitry in their own chips, with members of the alliance working on related products such as servers, networking and storage devices, participants said.Other initial members of the group, called the OpenPower Consortium, include Silicon Valley chip maker Nvidia Corp., NVDA +0.47% the Israel-based networking-technology maker Mellanox Technologies Ltd. MLNX +1.77% and Taiwan-based Tyan Computer Corp., a server supplier that is a unit of MiTAC International Corp.2315.TW +0.48%

The effort is the latest aimed at one of Intel Corp.’s INTC -0.31% key strongholds. The x86 chip design that Intel and rival Advanced Micro Devices Inc. AMD +0.53%popularized in personal computers thoroughly dominates servers—particularly machines sold for Web-based applications now being purchased in the greatest numbers. Research firm IDC estimates x86 servers in 2012 accounted for 98% of world-wide shipments and 70% of server revenue.

IBM, meanwhile, has faced a variety of pressures in servers. The company said last month that revenue from its Power-based systems declined 25% in the second quarter from a year earlier, without disclosing dollar figures.

Those servers run the Unix operating system and compete with other high-end systems in a market that declined 19% last year to $9.2 billion, says IDC analyst Matthew Eastwood, reflecting factors that include stiffer competition for x86-based machines. IBM has the biggest share of that market, but IDC estimates that Big Blue’s revenue from those systems declined 10% to $5.1 billion in 2012.

By licensing hardware and associated software technology, IBM hopes to get more revenue from its investments in the Power chips and attract new users among “Web 2.0” companies that are buying servers in large volumes, said Bradley McCredie, an IBM vice president who also holds the title of fellow.

“We absolutely want to get into a broader ecosystem,” he said. “That is why we are doing this.”

The effort will start with Power8, a forthcoming member of the chip family that IBM plans to discuss at a technical conference this month.

IBM has shared elements of its Power technology before for different applications than servers. But the alliance’s strategy most resembles tactics pursued in chips for smartphones and tablets by ARM Holdings PLC, which licenses technology to a range of chip suppliers that compete on features and price. ARM backers are now also trying to break into servers, seeking to offer energy-efficient chips that save on space and power consumption.

Attracting users to the third option of Power chips won’t be easy, given Web companies’ massive investments to date in machines and software based on chips sold by Intel and AMD. But an endorsement from Google could help, given its status as a huge buyer of x86-based servers that it designs and assembles itself.

The Internet giant declined to discuss its plans in detail, but suggested that using Power-based systems was a possibility.

“The consortium has the potential to establish Power architecture as a viable option for applications running within Google’s data centers,” a Google spokeswoman said, adding that her company believes in “openness” and looks forward to the innovation the Power group will bring.

Other participants cite additional motivations. Nvidia, for example, hopes IBM will help market its graphics chips for use in accelerating certain jobs in Power-based servers.

“IBM is the company that knows enterprise computing best and has one of the best sales teams out there,” said Sumit Gupta, an Nvidia general manager.

Tyan sells servers to the kind of buyers the consortium is targeting, citing customers that include Inc. and China’s Tencent Holdings Ltd. 0700.HK +1.56%Albert Mu, Tyan’s general manager, noted that the Power technology has some technical advantages over x86 chips but is costly for IBM to keep improving, given the relatively small number of Power systems sold.

Server buyers “now have no choice—it’s like 100% Intel,” Mr. Mu said. “This has limited innovation that needs to take place for the server market to continue to grow.”

An Intel spokesman declined to comment. But Andrew Feldman, a corporate vice president at AMD, said the Power consortium is emulating the ARM approach of selling chips that are tailored for specific customers—one of the reasons AMD has announced plans to start selling ARM-based chips in addition to the x86 variety.

“IBM is saying the way to attack Intel is by allowing customization,” Mr. Feldman said. “I commend them for it.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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