February 29, 2012 / 9:40 PM / 7 years ago

UPDATE 2-AMD to buy SeaMicro for $334 mln in server move

* Part-cash deal gets AMD into microserver niche

* SeaMicro would add to earnings after 2012

* Cloud computing driving server demand

Feb 29 - Advanced Micro Devices plans to buy Silicon Valley startup SeaMicro Inc for $334 million to gain a foothold in smaller, lower-power computer servers, a potential area of growth as Internet services expand and corporations look to save on electricity bills.

AMD’s first major acquisition under new CEO Rory Read, who replaced the ousted Dirk Meyer, is aimed at the microserver market, where relatively lightweight — and hence lower-power — computers host Web services including multimedia streaming.

The company hopes to market SeaMicro’s servers, which it says consumes a quarter of the power and take up a sixth the space of a typical server that comprises the massive “farms” that corporations now maintain, to its corporate parters: Hewlett Packard, Dell Inc and IBM.

“They’ve got the technology, we’ve got the relationships,” AMD director of product marketing John Fruehe said in a brief telephone interview. “A microserver with a very low footprint ... is what the cloud market is looking for.”

The rapid adoption of cloud computing — where data and applications are stored on or hosted on remote computers via the Interent — is driving worldwide server demand.

SeaMicro just last month announced its first servers powered by AMD arch-rival Intel Corp would be available on the market. It’s unclear how the proposed acquisition will affect that partnership.

Experts say microservers might become popular with smaller companies — such as Internet startups — that are both conserving capital while eschewing the need for the raw processing power of today’s computer servers. SeaMicro’s customers include Mozilla, Skype and eHarmony.

But Fruehe said SeaMicro also has the capability to go mainstream and its servers can be scaled-out to accommodate more intensive tasks.

AMD will be footing $281 million of cash from its reserves for SeaMicro, which is backed by Khosla Ventures, Draper Fisher Jurvetson, Crosslink Capital, among other investors. The acquisition, which is expected to close in about 30 days, will not change the company’s 2012 guidance but will begin affecting earnings after this year.

AMD’s shares held steady in extended trading after closing at $7.35 on the New York Stock Exchange.

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