Update: AMD withdraws from high-density server business

The company is ditching a business it formed by acquiring SeaMicro three years ago

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AMD has pulled out of the market for high-density servers, reversing a strategy it embarked on three years ago with its acquisition of SeaMicro.

AMD delivered the news Thursday as it announced financial results for the quarter. Its revenue slumped 26 percent from this time last year to $1.03 billion, and its net loss increased to $180 million, the company said.

AMD paid $334 million to buy SeaMicro, which developed a new type of high-density server aimed at large-scale cloud and Internet service providers.

The purchase was made under former CEO Rory Read, and has now been reversed by Lisa Su, who took over the CEO job last October.

AMD said the move is part of its effort to "simplify and sharpen" its investment focus. As a result, it is taking a charge of $75 million.

The chip maker needs to focus its resources on growth opportunities, and microservers like those SeaMicro developed haven't been as popular as expected, Su said on the company's earnings call.

"They have not developed at the pace we might have thought a couple of years ago," she said.

Su said AMD retains the intellectual property for SeaMicro's networking fabric, which provides a way for hundreds of small servers to operate in unison, but it's not clear how the company might use it.

AMD still sees growth potential in the server market, but not from selling complete systems. It's returned its focus to x86 chips and to the development of its first ARM server processor, code-named Seattle.

That chip seems to be delayed, however. Volume shipments will start in the second half of this year, Su said. AMD had previously targeted the launch for 2014.

It's also unclear how big the market for ARM-based servers will be. They promise greater energy efficiency than x86 servers do for some workloads, but they require some big changes in data centers, including developing and maintaining new software.

The news sent AMD's stock down 9 percent in after-hours trading, to $2.61.

AMD executives are expected to discuss the decision in a conference call Thursday afternoon.

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