FBR Capital Markets Sees News of Google Designing ARM-Based Servers as Unlikely

In a report published Friday, FBR Capital Markets analyst Christopher Rolland commented on recent news related to

. In the report, FBR Capital Markets noted, “Thursday afternoon, December 12th, Bloomberg reported that Google was considering designing its own ARM based server processors. While Google is a company known for out-of-the-box thinking and organic hardware/infrastructure development, we believe it unlikely they could build a competitive server-class processor with integrated fabric and connectivity within the next three to five years. While pursuit of ARM server processors would be a strong validation of ARM server technology, we believe a much more intelligent decision for Google would be to engage in a strategic joint venture or purchase the assets of a leading ARM based server processor designer. This purchase could give Google an existing dedicated design team and solidify true competitive advantages with time to market advantages. We estimate Google spends $250 million annually on Intel Xeon server processors, and in our opinion, enough to justify a large scale asset purchase. Overall for semiconductor stocks, the SOX is up over 30% year to date, and we believe the early stages (call it the first six innings) of the recovery are already reflected in share prices. That said, our recent supply chain checks point to acceleration in 1Q14 as we continue in the expansion stage of the cyclical semiconductor recovery. Within this context, our favorite longs are ARMH, ATML, AMCC, BRCM, INTC and ONNN.” Google closed on Thursday at $1,069.96.