When Will ARM Invade the Server Market?

Servers have always primarily been x86 processor territory ruled by the likes of Intel (NAS: INTC) and Advanced Micro Devices (NYS: AMD) . With the momentum that ARM Holdings (NAS: ARMH) --based chips have gathered in mobile thanks to advantages in power efficiency, can its legion of licensees crack into the lucrative server market?

The first seeds were laid several months ago, when Hewlett-Packard (NYS: HPQ) announced a new line of servers running on ARM-based chips from small chipmaker Calxeda. The first run is meant for testing  -- purposes, so potential adopters can get a feel of what an ARM-based server offers, namely, lower power consumption.

In a recent interview at the Consumer Electronics Show, ARM CEO Warren East detailed a potential timeframe for ARM chips to make a meaningful impact on the server market. East pegged 2014 as the year as its 64-bit processor designs see the light of day. The company put together a server game plan as early as 2008, but realized back then it would likely be a six-year endeavor. His comments echo those he made back in December 2010 regarding 2014 as the year to mark.

This comes shortly after ARM licensee NVIDIA (NAS: NVDA) announced that its ARM-based Tegra chips had made it into a new hybrid supercomputer at the Barcelona Supercomputing Center, another area that Intel and AMD command. These are still early-stage developments that have little likelihood of affecting Intel or AMD in these segments anytime soon, but it's a start.

Current ARM processors are 32-bit, and a large number of server software applications are written for 64-bit chips, putting ARM at a disadvantage to its x86 rivals. East said, "Today ARM is a 32-bit processor and so we just have to accept the fact that those server workloads where the assumption is 64-bit, we can't do it."

ARM introduced its first 64-bit architecture late last year, but chips take years before they make it to market and the first 64-bit ARM chips aren't expected until 2014. The new architecture handles memory and storage better, both critical functions for server applications.

At the same time, it's not like Intel and AMD will be sitting still for the next two years. Intel is pushing into ARM territory with its Medfield Atom chip, which improves on power consumption relative to older Atom processors. Intel is clearly starting to realize the importance of power efficiency, a department that ARM currently leads.

If Intel can apply the lessons it's learning with Medfield to its server processors, it has a better chance of fending off ARM's invasion. It will be an interesting couple of years to see if either side can invade the other's turf.

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At the time this article was published Fool contributor Evan Niu has sold a bullish put spread on NVIDIA. He owns shares of ARM Holdings, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of NVIDIA and Intel; writing puts in NVIDIA; and creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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