ARM’s Server Champion, Calxeda, Bites the Dust

There has been a lot of talk about ARM (NASDAQ: ARMH  ) based servers in the datacenter, and Calxeda – founded in 2008 – was one of the leading "champions" of this move to ARM-based servers. Unfortunately, despite the fanfare that this company has drawn over the last couple of years, the company couldn't secure another round of funding to continue development of its low power ARM-based chips intended for scale out servers. As a result, the company is shutting down.

Why couldn't it secure more funding?
The most pressing question that any believer in the ARM server story should attempt to answer is, "why couldn't Calxeda get more funding?"

The reason that it's such an important question is that Calxeda was funded by some pretty big names, including ARM Holdings, Advanced Technology Investment Company (the folks backing Global Foundries), Highland Capital, and many others. In particular, with ARM so gung-ho about its datacenter opportunity, one would think that it would find the cash (or the stock – ARM's stock is currently pushing through to new all-time highs and would make great "currency" for this fund) to keep the dream alive.

Calxeda was primed for a buyout, but it never came
There was never any chance that a start-up with "more than $90 million" in funding could really succeed in the server space against Intel (NASDAQ: INTC  ) to whom countless others – including DEC, IBM, Oracle, and AMD – have fallen. The goal for any small start-up like Calxeda is to develop valuable technology that can be sold for more than the initial investment.

It is not inspiring to see that Calxeda's original backers – again, one of whom is ARM itself – unwilling to sink any more money into this investment. If there was really something unique and valuable that could come out of this, then additional investment would be warranted. But that's the problem – there wasn't much here. Calxeda basically took off-the-shelf ARM cores and built a system-on-chip around them and a custom-developed scale out fabric known as "Fleet Fabric". This "fabric" was supposed to allow Calxeda to connect "10's, 100's, or even 1000's" of these SoCs (known as EnergyCore) to enable great scale-out dense server solutions.

How much was that really worth?
The big question here is just how much is a successful fabric worth? Well, look no further to AMD's (NYSE: AMD  ) acquisition of SeaMicro for its "Freedom Fabric." AMD paid $334 million for the company and in return got a very nice fabric (that AMD plans to integrate into its own scale-out oriented chips) as well as a business that actually has a pretty sold number of customers actually buying its home-grown servers.

It makes sense that investors didn't want to sink more than $100 million into Calxeda. If SeaMicro – with a fabric and a business that sells entire boxes – went for $334 million, then Calxeda may have been able to sell itself for $150 million – not a terrible return on $100 million, but it leaves very little room for further investment with an expectation of meaningful return on that capital.

What happens now?
With Calxeda shutting down, the interesting thing to see will be who picks up the remains. If, say, Google or Facebook were interested in picking up the remains, then this may lend some credence to the rumors that these players are looking to develop their own server SoCs. Same thing goes for Qualcomm or Samsung. At any rate, Calxeda's assets probably won't see too much bidding action since if a company really did find these assets highly valuable, they probably would have done so before this shutdown.

Foolish bottom line
Competing in servers isn't easy and it isn't cheap; anybody thinking that $90 million or so was enough to go up against Intel was perhaps a tad too optimistic. There are still other players left wanting to challenge Intel here, and many will certainly try, but as we've seen with Calxeda, there will be many more broken companies on this trail to ARM servers before this is all said and done. 

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  • Report this Comment On December 21, 2013, at 2:56 PM, kafantaris wrote:

    Too bad for Calxeda, they were good.

    But being good is not good enough in the tech business. You also need to figure out which way the wind is blowing and get there fast. When you're wrong, you'll need to lay it all on the line while you find your way.

    Choosing to close shop when cash is around is the surest sign the business had lost its vision long before.

  • Report this Comment On December 22, 2013, at 7:04 AM, bluesky64 wrote:

    Ashraf,

    I agree AMD will pass all in this area. AMD is well on there way with their turn around. Alone in 2013 there chips are in the most popular products all sold out from game consoles to Bit coin mining to Mac pro. There are 17 Analyst following AMD come January many will raise rating with these result taking place over these great performance AMD chip are doing.

    I've raised my price target for AMD Feb 15 2014$ 5.25 and $ 10.75 Dec 31 2014

  • Report this Comment On December 22, 2013, at 5:52 PM, masterwallstreet wrote:

    In my opinion only, your article about the ARM servers, Calxeda closing because of lack of funding, is very interesting. If you are trying to compare AMD to Calxeda. First of all AMD has the financial means and the technology and the product that is coming out in 2014 the 64 bit ARM servers. There is a lot of news and hype. This will be one heck of a great year for AMD. Their brand is getting so recognizable and popular people are starting to demand it now. The Playstation 4 is one of the hottest tickets for the season and that is back order. X Box 1 is a hot ticket item for the season and in back order too. The new release MacPro is backordered. You have a new console that is coming out in January. You have the new product the ARM 64 bit server that will make its debut in 2014. In my opinion AMD will be the next 800 pound gorilla. Right now is a great time to go short on overpriced Intel and Intel brand is starting to die out and a great time to go long on AMD because it will explode to newer highs. It has been shorted a lot. It will be one gorilla squeeze.

  • Report this Comment On December 23, 2013, at 7:29 AM, kjurden wrote:

    @AE...AMD is a buy!

  • Report this Comment On December 23, 2013, at 11:35 AM, TEBuddy wrote:

    Of course ATIC and ARMH dropped Calxeda, they are backing AMD, who has their own money. ATIC owns a good share of AMD, and their interest in GloFo production. AMD has an advantage, and has likely already proven to have a better hardware and software team with silicon in hand already. This is unfortunate for competition and diversity, but a positive for AMD, who is probably well on their way to delivering something of great value.

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