Back in June, server startup SeaMicro dropped its Atom bomb on the server market, launching an extremely energy-efficient server using Intel’s Atom microprocessors. That enabled SeaMicro to get customers who delivered web pages to tens of millions of internet users across four continents. Now SeaMicro is dropping another Atom bomb.

The Santa Clara, Calif.-based company is announcing a second generation of servers today that use a new 64-bit Atom microprocessor from Intel, improving the amount of computing power that SeaMicro’s servers can use per watt of power consumed.

“The response has been extraordinary,” said Andrew Feldman (pictured at top), chief executive of SeaMicro. “The sucking sound in the market is unbelievable. Everybody wants low-power computing.”

As we wrote last year, SeaMicro found a way to turn the server industry on its head. Computer makers were once obsessed with building servers that had as many cores, or brains, as possible. But those microprocessors used a lot of electricity, throwing off a lot of heat in a confined space and consuming so much power that the electricity bill became bigger than the cost of the equipment.

So SeaMicro created the SM10000, with a tiny server board that was two inches by three inches (pictured). Using just one power efficient Atom chip set, SeaMicro could jam eight servers in a 5-inch by 11-inch circuit board. It put 64 of those circuit boards into 10 slots in a rack chassis. It could therefore put 512 Atom processors in a space that was a quarter of the size of a normal server rack. And it used a quarter of the power, weighed a third of the equipment it replaced, and cost a lot less at $130,000 per machine. SeaMicro started shipping the SM10000 in August and it has sold a lot of the systems to customers including Skype, Mozilla, Rogers Communications, Oakridge National Laboratories, France Telecom and China Netcom Broadband. Those companies are using the servers in internet data centers where serving large volumes of web pages to lots of users is the task at hand.

That’s pretty stunning execution for a hardware startup, considering that most enterprises are shy about using small companies and prefer to work with established vendors. But those customers got tired of using the computing equivalent of a space shuttle to go shopping at the grocery store.

SeaMicro also attacked the power consumption in the rest of the system, which accounts for about two-thirds of the power consumed by a server. The company did so with a very clever trick known as virtualization.

Today, virtualization is used with servers. It is a layer of software that rests between an application and the servers that it runs on. If an application needs only two servers, the virtualization software finds two available servers to run the application. If the application gets busy and needs 10 servers, the virtualization software finds 10 available servers to do the job. The application is no longer tied to specific servers; the virtualization software frees up the overall system and gets more utilization out of the available servers, as needed to run applications.

SeaMicro did the same thing, but it applied the concept of virtualization to the inside of a server. Feldman designed custom chips that could take the tasks that were handled by everything beyond the Intel microprocessor and its chip set. The custom chips virtualize all of those other components so that it finds the resource when it’s needed. It essentially tricks the microprocessor into thinking that the rest of the system is there when it needs it.

SeaMicro virtualized a lot of functions that took up a lot of space inside each server in a rack. It also did the same with functions such as storage, networking, server management and load balancing. Full told, SeaMicro eliminates 90 percent of the components from a system board. SeaMicro calls this CPU/IO virtualization. With it, SeaMicro shrinks the size of the system board from a pizza box to the size of a credit card.

By boiling down the rest of the system into a couple of chips, SeaMicro can get rid of a lot of the components in a system, thereby getting rid of space, cost, and power consumption.

Feldman acknowledges there were some roadblocks for customers who wanted to buy the first-generation servers. Since the Atom chips were 32-bit processors, the biggest potential customers couldn’t buy the SeaMicro technology because they needed 64-bit processing.

Also, the 32-bit processors could only address as much as 2 gigabytes of main memory at any given time. That was too small for companies with the largest databases. Now, with the new 64-bit dual-core Intel Atom n570 coming soon, SeaMicro can now build 64-bit servers with 4 gigabytes of main memory per processor.

Feldman says SeaMicro’s new SM10000-64 rack server can now lower its power consumption per machine as much as 15 percent to 20 percent with the new Atom chips, which support virtualization technology. SeaMicro kept the same 10-slot rack that it used before, but now it has 256 dual-core chips in it with a total of 512 cores, rather than the 512 single-core chips. The machine is more powerful and uses less power.

Customers who spend about $4 million on SeaMicro equipment can wind up saving about $16 million in lower computing and power costs.

SeaMicro has about 75 employees now and is adding about one a week. It has raised more than $40 million. It also got a $9.3 million grant from the Department of Energy. Feldman says the company is profitable and is not looking for a new round of funding.