Austin's Calxeda looks to make hay from Web giants' shifting server demands [Austin American-Statesman]
(Austin American-Statesman (TX) Via Acquire Media NewsEdge) March 09--The giant companies of the Internet are demanding -- and getting -- changes in the way computer technology is delivered to them. What they want delivered are more efficient ways to run the big data centers that make their businesses work.
And that could translate into big things for Austin chip startup Calxeda Inc., which makes low-power servers that fit the bill for the changes companies like Facebook Inc. are pushing.
Clout in the data center industry is quickly shifting to big players -- like Facebook -- that can buy thousands of servers at once. Facebook in January unveiled a project called "Group Hug," in which competing technology providers agreed to create server "motherboards" that could be quickly plugged into its data centers.
The social media company also helped create a technology group called the Open Compute Platform to help drive the computer industry toward more lower-cost and interchangeable components that can be plugged into data centers. Facebook spent more than $600 million on data centers and equipment inside them in 2011 and expected to spend another $500 million in 2012.
Four chipmakers signed on to the "Group Hug" project, including Intel Corp., the largest and richest semiconductor company and the dominant supplier of server technology. Joining Intel on the project was Austin's Calxeda, which has just over 100 employees and is only a few years removed from the Austin Technology Incubator.
"The guys who write the checks set the rules," said Karl Freund, Calxeda's vice president for marketing, in explaining Facebook's ability to make "Group Hug" a reality. "For players like us, this project should level the playing field and lower the cost of entry for large-scale data center customers who want to evaluate and deploy our technology."
Along with Facebook, the companies making new demands on the computer industry include Amazon.com, the largest provider of cloud computing services, and Baidu, the biggest search engine company in China, where Internet usage is exploding.
Much of what they are looking for are more efficient ways to run their big data centers, which analysts call the "factory floors" of the Internet. That's why some of those companies use stripped down servers of their own design that cost far less than the feature-laden servers sold to most business customers. Another potential big area of cost savings is the advent of low-power servers that can do more of the routine work on the Internet, such as delivering Web page content to users, at a lower price using far less electrical power and taking up far less expensive data center space. Some analysts call this new trend "dense servers," and plenty of companies, including Calxeda, are lining up to provide them.
"The server market is on the cusp of huge change," said analyst Patrick Moorhead with Moor Insights & Strategy. "A big part of that story is dense servers. The growth in that segment could be a hockey stick (meaning rapid growth). And, based on what I am hearing and seeing, things are looking good for Calxeda."
The Austin company is just one of several chasing the emerging dense server market. Others include Advanced Micro Devices Inc., Applied Micro Circuits Corp., Marvell Technology, Nvidia, Samsung Electronics, Qualcomm and even Intel itself.
Except for Intel, almost all the other entrants are expected to use basic technology developed by ARM Holdings Ltd., the English company that drives most of the basic chip designs for smart phones and other battery-powered mobile devices. ARM was among the first round investors in the company when Calxeda raised $48 million in 2010. The company raised another $55 million last fall to support its next rounds of hardware and software development and to step up its sales effort. The latest investors were Austin Ventures and Vulcan Capital, the investment company created by Microsoft co-founder Paul Allen.
Why the investment rush Because the world's big Internet companies are expected to invest heavily to keep up with expanding usage of the Internet, most of which will be driven by new mobile devices. The Oppenheimer & Co. securities firm estimated last year that the market for processor chips in new low-power will grow at a combined rate of about 95 percent a year between 2011 and 2016. Oppenheimer expects that market will b e $4.5 billion in size by 2016.
But Calxeda started attacking the problem from the day it was started in 2008. It has been shipping its first-generation of low-power server technology, called Energy Core 1000, since last fall. And it expects to begin producing a more powerful second generation, nicknamed "Midway," before the end of this year. A third generation, nicknamed "Lago," is due out next year and it will be the first to feature full 64-bit performance, which has become the standard for most servers. Sixty-four bit refers to the amount of data that the server can process at any given instant.
The company is hiring rapidly. It had 60 workers last summer, about double that in late February and it expects to employ close to 200 by the end of this year.
Most of the engineering hardware and software development goes on at company headquarters on North MoPac Boulevard, but Calxeda also has set up a branch office in Silicon Valley and two smaller branches in Taiwan and Beijing. Some of the company's more routine chip development work gets handed off to outsourcing firms, while Calxeda's engineers concentrate on key hardware and software work to make their system chips more efficient and easier to manage.
Asia is where much of the action is likely to be located in the new market because that is where the Internet usage is growing the fastest. One of Calxeda's first public customers is Boston Ltd., an English computer company that last week announced a first cloud service based on Calxeda technology.
"The new end users are household names in China," Freund said. "They are building more stuff there and they are building it faster. And they are more willing to try new stuff."
Most companies planning to develop ARM-based server technology are waiting until next year to introduce their first products. That is when ARM will have its first 64-bit processing cores ready to be used in products by its partner companies.
Calxeda decided to move first to develop two earlier generations of 32-bit chips both to gain valuable engineering experience and to learn more about what their potential customers really want.
"They get a first-mover advantage," Moorhead said. "They can tune their offering. The more time you are working with customers, the higher the likelihood that you will get some of their business if things go well. You become the entrenched vendor."
The market is far too new to call anyone an entrenched vendor yet. But Calxeda seems to be gaining traction. It has about 100 customers evaluating its first-generation chips and it has been working with Hewlett-Packard Co. -- a big server supplier -- on a low-power development platform that HP calls "Project Moonshot."
Industry writer and gadfly Charlie Demerjian predicted two years ago that Facebook might be among the first big customers for Calxeda's technology. Neither company has confirmed that forecast.
"We deliver higher density," Freund said recently. "And they (Facebook) are interested in the concept."
The Austin company has laid the technical foundation for its products and now it is gearing up for a faster pace of product development.
"The learning experience (on a first generation of products) is incredibly valuable," Freund said. "It allows us to be more competitive and it gives us incumbency.
"This is the model the ARM server market will see for the next five years," he said. "The performance will increase generation by generation and the generations will come out fast and furious. And each time, we will carve off another piece of the market."
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