Applied Micro "Tapes Out" X-Gene 3 Server Chip

By Markets Fool.com

For many years now, small chipmaker Applied Micro (NASDAQ: AMCC) has been vocal about its ARM-based server processor efforts, branded X-Gene.

Continue Reading Below

The company's first two generations of X-Gene processors -- X-Gene 1 and X-Gene 2 -- have seen limited adoption by major data centers. However, Applied Micro seems optimistic that its third crack at it -- X-Gene 3 -- will be more successful in the marketplace.

Image source: Intel.

X-Gene 3 "tapes out"

According to Applied Micro CEO Paramesh Gopi, the company "successfully taped out" X-Gene 3 in Taiwan Semiconductor Manufacturing Company's (NYSE: TSM) 16-nanometer manufacturing technology last quarter. This means the design was sent off to TSMC to be manufactured.

Gopi says that the company still expects that it will ship samples of X-Gene 3 processors to major customers before the end of March.

Continue Reading Below

If Applied Micro starts sampling to customers by this coming March, then it would be reasonable to expect volume shipments of the final product to start by March 2018, or about a year after sampling begins.

A big improvement over prior-gen X-Gene

Gopi claims that X-Gene 3 will provide a substantial boost in performance relative to the prior-generation X-Gene 2. "X-Gene 3 is expected to deliver six times the performance of currently shipping X-Gene product," Gopi said.

He went on to claim that X-Gene 3 is expected to go head-to-head with server processor market leader Intel's (NASDAQ: INTC) Xeon E5 and Xeon E7 processors "in a similar power [envelope]."

Applied claims "customer interest"

According to Gopi, the company is seeing "customer interest" for X-Gene 3 "as it offers socket level performance beyond [Intel Xeon] E5 and E7 class performance coupled with an industry-proven third-generation product family."

As far as the potential of X-Gene 3 to move the needle financially, Gopi cautioned that the company isn't expected to see a "big impact" to its revenue until the company's fiscal year 2018 -- a sensible claim, given the time it takes to go from providing product samples to volume shipments of the finalized product.

Taking a "wait-and-see" approach

Applied Micro has been talking about its X-Gene family of server processors for about half a decade now. Back in 2011, the company published a slide claiming that X-Gene would outperform Intel's then-current and future server processors by 1.5 to 3 times in comparable power envelopes.

The reality is that Applied Micro's X-Gene 1 chip got wrecked by a low-end Intel Atom-based processor that made it to market well before X-Gene 1 did.

Indeed, of the $41.78 million in revenue that the company brought in last quarter, only around $11.6 million came from the sale of computing products, including the ARM based X-Gene parts, as well as its embedded PowerPC-based products.

Putting this into context, last quarter Intel's data-center platform revenue was $4.164 billion. Intel says that "platforms incorporate various components and technologies, including a microprocessor and chipset, a standalone [system on a chip], or a multichip package."

Applied Micro's total computing revenue is what Intel would probably call a rounding error.

Considering Applied Micro's track record of overpromising and underdelivering with X-Gene, it might make more sense for investors to take a wait-and-see approach before buying the hype around X-Gene 3.

10 stocks we like better than Applied Micro Circuits
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now and Applied Micro Circuits wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 7, 2016

Ashraf Eassa owns shares of Intel. The Motley Fool recommends 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.