Chinese firms join IBM's new chip-tech group alliance

Updated: 2014-05-02 11:36

By Michael Barris in New York (China Daily USA)

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Chinese companies' participation in an International Business Machines Corp chip-technology alliance gives them the ability to custom-design chips that power a growing economy, analysts said.

The US information-technology giant's recruiting of telecom equipment maker ZTE Corp, server maker Inspur Group Co and other Chinese technology providers is the latest step in a plan unveiled last summer to allow many companies to license IBM microprocessor designs based on the company's "Power" technology, a key step in IBM's effort to broaden the technology's acceptance.

"IBM must find additional revenue sources through new markets and partners or they will struggle to fund the substantial development costs needed to design future Power processors," Moor Insights & Strategy senior consultant Karl Freund wrote in a research article.

For years, the designs existed only in the Armonk, New York-based company's own server systems. Under the alliance, dubbed "OpenPOWER", licensees can include IBM-designed circuitry in their own chips. Alliance members work on related products such as servers, networking and storage devices. With IBM revenue slumping, "the stakes could not be higher," Freund wrote.

From 2002 to 2012, IBM's share of the market for the widely used Unix multiuser operating system jumped to more than 55 percent from 14 percent, on the back of the speedy Power architecture. Amid declining demand for Unix-based servers, IDC sees Unix server revenue sliding to $8.7 billion in 2017 from $10.2 billion in 2012. Unix market share is seen plunging to 9 percent of server revenue in 2017 from 16 percent.

IBM decided last summer to reboot the technology by opening it to high-tech allies who could tailor it to parties' specific needs. Google Inc joined in August. In January, China's Suzhou PowerCore Technology Co and the Research Institute of Jiangsu Industrial Technology signed on.

Suzhou PowerCore agreed to license IBM's Power architecture, intellectual property related to its fast Power8 processor, and chip design tools to develop and market processors for specialized servers in China.

The Research Institute of Jiangsu Industrial Technology said it would promote and help develop Power in Jiangsu province and throughout China. ZTE and Inspur will be producing chips to meet growing demand and satisfy security requirements, alliance president Bradley McCredie told China Daily.

The alliance's seven Chinese members are ZTE, Research Institute of Jiangsu Industrial Technology, Inspur, Teamsun, Chuanghe Mobile Co, Suzhou PowerCore Technology Co and VeriSilicon.

Freund said recruiting the Chinese companies was important to IBM because of the size of the potential Asian market. "IBM likely is targeting the large Chinese data centers such as Tencent, Alibaba, Baidu, and China Telecom," which have "deep collaborative relationships with Intel", he wrote.

Analyst Timothy Prickett Morgan said participation is a way for the Chinese companies to flex some of that muscle in their business dealings with the US company. The big tech companies in China want to have some sort of say in how Power-based machines are designed and they don't just want to buy boxes from Big Blue, according to Morgan. That is one reason why Suzhou PowerCore has licensed the Power8 chip specs and is working on its own variants for servers, storage, and other data center products.

Tom Rosamilia, IBM's systems and technology general manager, said the company has "had a very successful business in China around our Power technology for quite some time now. It is obviously a big market for us and for all the world."

(China Daily USA 05/02/2014 page2)