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Upstart chipmaker Applied Micro Circuits Corp. is poised to release an energy-saving server chip aimed at cloud-based business such as Facebook and Google. The move places the Sunnyvale, Calif-based semiconductor firm squarely up against chip industry giant Intel Corp. which recently released its own portfolio processors for cloud service providers.

Applied Micro, which began work three years ago on its low-power processors based on designs by British chip company ARM Holdings, is seen as a “significant threat” to Intel, by Hans Mosesmann, analyst for analyst firm Raymond James Ltd.

While Applied Micro’s 649 employees and annual sales of $195 million is dwarfed by Intel’s $53 billion annual sales and workforce of 105,000 worldwide, Mosesmann said the larger company stands to lose market share to the smaller rival.

The faceoff also comes at a time when Intel’s sales have flattened out in recent quarter as consumers turned away from PCs and began buying more tablet devices and smart phones.

Data centre products represent 20 per cent of Intel’s $10.7 billion sales last year. The company still commands 90 per cent of the microprocessor market but its grip could weaken with the shift to cloud computing.

Applied Micro, on the other hand is pinning its hopes on the cloud computing trend. The company founded in 1979 made chips for data storage and communications equipment, such as routers and wireless base stations.

That business is worth $750 million a year, but not big enough for the company’s CEO Paramesh Gopi who decided to shift Applied Micro’s focus on the cloud server chip sector in 2010.

His strategy is to use the ARM design for Applied Micro’s cloud server chips. The ARM chips are already widely used in tablets and smart phones and other wearable technologies. Analysts believe the chips can also be configured for server deployment.

Earlier last month, Intel released its Avoton family of chips for cloud data centres.

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