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Sanmina confirms server start-up buy

The contract manufacturing giant signs a deal to acquire Newisys, a Texas start-up that makes servers built around AMD's Opteron chip.

Contract manufacturer Sanmina-SCI on Wednesday confirmed that it has entered an agreement to buy Newisys, a start-up that built some of the first servers using Advanced Micro Device's Opteron chip.

As reported earlier, the Austin, Texas-based server start-up had gotten positive reviews for its technology but was having a difficult time attracting customers. The company, founded by a number of executives from IBM, designed its servers for corporate users.

The deal is a possible boon for AMD's Opteron chips. However, early customers for Opteron servers have turned out to be academic institutions, such as the University of Michigan and Texas A&M, who are less interested in some of the high-end features found in the Newisys machines and more concerned about price.

"They designed a very impressive product that was a little ahead of the market for where AMD processors were," Insight 64 analyst Nathan Brookwood said in an interview earlier this week. Newisys began selling its servers in April.

The company, according to sources, was also burning through cash, a chronic problem for many hardware start-ups. Newisys planned to sell servers to customers as well as license its designs to established manufacturers, who would then manufacture and sell systems under their own brand names. Recently, Newisys laid off a number of executives.

Being acquired by Sanmina will shield the company from some of the harsh realities of the server market as well as open the door to sales opportunities. Sanmina is one of the largest contract manufacturers in the world and produces PCs and low-end servers for IBM, among others.

"We've got a big parent with a big back-end manufacturing capabililty," said Phil Hester, CEO of Newisys, adding that early on in Newisys' history, large server makers would say, "'Great technology, but you're a small start-up. How do we know you will be around?'"

Hester added that Newisys is in discussions with all of the large manufacturers about possible licensing deals.

IBM is expected to come out with its first Opteron-based server in the near future, according to AMD CEO Hector Ruiz. Big Blue has said it will design these Opteron servers itself. Nonetheless, IBM seems interested in adopting some of the Sanmina-Newisys technology.

"The acquisition of Newisys gives Sanmina-SCI additional skills that will help them deliver enterprise-quality server design," Bob Moffat, IBM's senior vice president of integrated supply chain efforts, said in a statement.

Newisys will become a wholly owned subsidiary of Sanmina. Terms of the transaction were not disclosed. The deal will close in a few days, the companies said.

Newisys was founded in part by former IBM server and PC execs. Hester, for instance, once served as the chief technology officer of IBM's PC division. Rich Oehler, chief technology officer for Newisys, was once an IBM Fellow, the title given to IBM's deep technological thinkers. Investors include New Enterprise Associates, Austin Ventures and AMD.