Microsoft to go ahead with Xilinx for half of Azure servers, replace Intel chips

Xilinx Inc., a maker of programmable chips increasingly being used in data centres, has won orders from Microsoft Corp.'s Azure cloud unit, replacing chips made by Intel Corp., according to people familiar with its plans.

Azure will use Xilinx chips as co-processors in more than half of its servers, winning business that has been an exclusive for Intel's Altera unit, according to the people who asked not to be identified because the arrangement hasn't been made public yet. Co-processors are chips that accelerate some functions to relieve the main processor in a server. A representative for Xilinx declined to comment.

Microsoft said it will continue its relationship with Intel in its current offerings.

"There has been no change of sourcing for existing infrastructure and offerings," according to a Microsoft spokesperson.

Xilinx chips will have to achieve performance goals to determine how widely they're deployed, according to one of the people with knowledge of the arrangement.

Programmable silicon is finding more of a role outside of its traditional use in cell-phone base stations as operators of large computer networks use the chips to speed up some workloads. Intel acquired Altera in 2015 for $16.7 billion to gain that capability and give its main Xeon server processors more flexibility.

Xilinx, under Chief Executive Officer Victor Peng, is trying carve out a niche in the growing market for data center components. Companies such as Microsoft, Alphabet Inc.'s Google and Amazon.com Inc. have become huge purchasers of server chips. They're also increasingly looking for alternatives to standard processors to increase the efficiency of their data centers.

Intel's programmable chip business had $496 million of sales in the third quarter, a gain of 6%. Xilinx, which only makes this type of chip, reported a jump in revenue of 19% in its latest quarter.

Xilinx rose 4.7% to $82.05 in New York Tuesday. That brings its gains for the year to 22%, outpacing the performance of other chips stocks this year.