Advanced Micro Devices announced Wednesday it is buying low-power server vendor SeaMicro, a surprise move that puts AMD in the systems business and disrupts Intel by acquiring one of its close partners.

AMD will pay US$334 million in cash and stock for SeaMicro, an 80-employee Silicon Valley startup that has gained attention for building highly dense and power-efficient servers for use in large-scale cloud computing environments. SeaMicro CEO Andrew Feldman will become general manager of a new division at AMD, the Data Center Server Solutions group.

AMD plans to sell SeaMicro-branded servers directly to customers, but it bought the company primarily for its technology, which it hopes to license to other server vendors to build their own low-power systems, AMD officials said.

"SeaMicro has a proven technology that has been benchmarked in key customer sites to show improvements in power consumption and total cost of ownership. That [intellectual property] was very attractive to us," said Lisa Su, senior vice president and general manager for AMD's products division.

The move will be seen as a setback to Intel, which had built a tight partnership with SeaMicro. All the servers SeaMicro currently sells are based on low-power Intel Atom processors, and just a few weeks ago the companies held a joint press conference where Intel sang SeaMicro's praises.

An Intel spokesman declined to comment on the acquisition Wednesday before it was officially announced.

AMD will continue to sell SeaMicro servers based on Intel processors "for the foreseeable future," Lu said. By the end of this year, she said, it will release the first SeaMicro servers based on AMD Opteron processors.

Feldman wouldn't say when SeaMicro and AMD began talks but said the deal came about "unbelievably quickly." He said there were other suitors for the company, including non-chip vendors.

SeaMicro developed an interconnect technology that allows it to eliminate all but three of the chips on a standard server motherboard. That allowed it to develop servers that it claims consume one quarter the power and one sixth the space of standard x86 servers.

Its products are geared primarily towards high volume, Web-based transaction workloads that don't require the computing muscle of a traditional Xeon or Opteron server processor. Mozilla uses SeaMicro servers, for instance, to deliver software updates to users.

It's not clear which AMD processor SeaMicro will use as an alternative to Intel's Atom chip, though AMD has several low-power offerings and plans to release a new, low-power chip for tablets, code named Hondo, later this year.

However, SeaMicro has said its technology can also benefit servers based on more powerful processors. A server based on an Opteron chip would be efficient for running MySQL and MondoDB database workloads, Feldman said, as well as PHP applications used by many online services. It could also be used to build efficient supercomputers, he said.

It's a new direction for AMD, one it hopes will allow it to expand its server business and capitalize on the fast-growing cloud computing market. Spending on servers for such "scale out data centers" is expected to grow 33 percent a year on average for the next several years, AMD said, faster than the server market as a whole.

The move puts AMD in the difficult position of competing with some of its customers, though Lu insisted that will not be a problem. The scale of SeaMicro's business today is much smaller than that of a Hewlett-Packard or a Dell, she said, and AMD thinks the value of SeaMicro's technology to server vendors will outweigh their competitive concerns.

AMD's server business could use a lift, noted Dean McCarron, principal analyst at Mercury Research. "They are obviously experiencing a decline and this would be a way to expand the market for their processors," he said.

AMD is paying $281 million in cash for SeaMicro and the remainder in stock, Lu said. It expects to close the deal in March.