Intel rolls out Xeon in crowded servers arena

SANTA CLARA, California (Reuters) - INTEL (INTC.NQ)has unveiled its newest and most powerful family of microprocessors, the Xeon, announcing more than 70 customers for a more energy-efficient chip targeted at an increasingly crowded server market.

The world's largest chipmaker officially announced its Xeon chip for servers and workstations on Monday, based on its "Nehalem" design, technology that had been incorporated in Apple's Mac Pro since January.

Analysts said the new processors may help it cement its position just as Cisco readies a push into the market and a potential reorganization looms with sources and media saying IBM may buy server-maker Sun Microsystems.

"The server business is very competitive," said Douglas Davis, vice president of the digital enterprise group and general manager for Intel's embedded and communications group.

Xeon "will drive a set of requirements for the data center infrastructure."

Manufacturers and analysts say one of the next battles in the chip industry revolves around the amount of energy required to run data centers. A chip that performs better without drawing more power or producing more heat could be key.

Intel is designing a range of Nehalem-based microprocessors targeting servers, workstations, regular desktops and mobile devices, with the Xeon squarely intended for servers.

Dell and Lenovo had announced servers using the chips last week. On Monday, Hewlett-Packard rolled out its new line of Proliant servers using the Xeon processor 5500 series, which Intel said can automatically adjust power consumption in real time.

Other users and supporters of the Xeon family will include software developers Oracle, Microsoft, and SAP, Intel said.

Shares in Intel slid 4.5 percent on Monday as the broader market weakened, and were steady in after-hours trade.

"It is a pretty substantial shift, competition-wise and technology-wise," David Kanter, an analyst with Real World Technologies, said prior to Intel's official release.

Server shipments slid 12 percent in 2008's fourth quarter, their sharpest decline since the dotcom bubble burst seven years ago, and are unlikely to rebound significantly until late 2009 or early 2010, according to research house IDC.

The Nehalem competes with arch-rival Advanced Micro Device's Opteron, first released in 2003.

Nehalem design employs circuitry 45 nanometers wide, 30 percent smaller than previous chips using a 65-nanometer process. This means it can operate more quickly on the same amount of power.

Nehalem "will be very attractive to data centers," Kanter said. "Having the memory controller in the microprocessor is a huge benefit for servers."

Kanter said that Intel's on-chip memory controller could double the efficiency of its previous chips.

Intel's Nehalem and AMD's Opteron both have a memory controller on the chip, four cores, and can handle multiple instructions at once, but Kanter did not think AMD's Opteron could compete in the longer run.

As an example, Kanter said Intel has developed a way of sending two instructions to each core rather than just one and it can turn off cores when they are not needed.

"AMD in the 90s was the value alternative to Intel," he said. They sort of dropped the ball on product leadership and Intel's retaking the lead. AMD's going to be in the value position again."

(Reporting by Clare Baldwin; Editing by Edwin Chan, Gary Hill)