Qualcomm is Said to Plan Exit From Data Center Market Amid Cost Cuts

Ian King (Bloomberg) -- Qualcomm Inc., the biggest maker of mobile-phone chips, is preparing to give up its push to develop processors for data-center servers, an effort that sought to break Intel Corp.’s hold on the lucrative market, according to a person familiar with the company’s plans.

The San Diego-based company is exploring whether to shutter the unit or look for a new owner for the division, which was working on ways to get technology from ARM Holdings Plc into the market for chips that are at the heart of servers, the person said. ARM is one of Intel’s only rivals in developing semiconductor designs, and its architecture is primarily used in less power-intensive products, such as smartphones.

Qualcomm is the largest backer of an effort to find a role for ARM designs in the highest end of the computing market, where individual chips sell for multiple thousands of dollars. Chipmakers have been trying for years to provide owners of large data centers – companies such as Alphabet Inc.’s Google and Amazon.com Inc.’s Amazon Web Services – with processors to run them, trying to break into a business that Intel dominates with about 99 percent market share.

A Qualcomm spokesman declined to comment. In the company’s earnings report last month, Chief Executive Officer Steve Mollenkopf told analysts that Qualcomm is focused on spending reductions in its non-core product areas.

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Servers, which crunch data in corporate networks and act as the backbone of the internet, are a much smaller market than phones and personal computers when measured by shipments. But the price that chipmakers are able to charge for the high-performance parts needed to run them makes the market attractive.

Qualcomm began selling a server chip, the Centriq 2400, based on ARM technology last year. At the time, the company said the chips, which were manufactured by Samsung Electronics Co., offered better results than an Intel Xeon Platinum 8180 processor, based on energy efficiency and cost. At the public introduction of the server chip line in November, potential customers such as Microsoft Corp. took to the stage to voice their interest in the offering. Since then, Qualcomm has been silent about its progress.

While abandoning the effort would save Qualcomm the expense of designing some of the most expensive chips that the semiconductor industry produces, it would also be a retreat from the company’s goal of becoming less dependent on the slowing market for mobile-phone parts. Qualcomm’s management promised investors in January that the company would cut $1 billion in annual costs to improve profitability as part of an effort to fend off a hostile takeover bid by Broadcom Inc.

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Qualcomm prevailed because the U.S. government decided in March that the proposed deal posed a security risk. Investors had been on course to side with the would-be acquisition effort.