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Hoping to outdo Intel in the server chip market, Smooth-Stone has raised $48 million to complete development of its ARM-based server chips which consume small amounts of power.

Server chips command the highest prices of any chips, so the market Smooth-Stone is pursuing is worth billions. To date, Intel has dominated that market. But Intel’s mainstay server chips are still brainiacs, which perform powerful computing tasks but also consume a lot of power.

Smooth-Stone is one of a number of companies trying a different approach by using lots of little processors that consume small amounts of power. Instead of making Intel-compatible chips, Smooth-Stone will design chips based on the ARM chip architecture, which is commonly used for cell phone chips. The challenge for Smooth-Stone will be to create chips that are powerful enough to handle data center work. By contrast, Sea Micro is making low-power servers using Intel’s Atom chips, which are aimed at cell phones and netbooks. Other rivals include Agnilux, which was purchased by Google, and Tilera.

Austin, Texas-based Smooth-Stone was founded in January, 2008 and has just 12 employees. But it has some impressive backers in ARM, Advanced Technology Investment Company (or ATIC, which owns Globalfoundries and a chunk of Advanced Micro Devices), Battery Ventures, Flybridge Capital Partners, Highland Capital Partners and Texas Instruments. The company says it is hiring quickly now.

“This kind of investment, the amount, and the strength of this syndicate is a strong endorsement for the innovation we are bringing to market,” said Smooth-Stone chief executive Barry Evans.  “We look forward to taking advantage of the insights and know-how of these industry-leading investors.”

Chip designers have learned a lot of lessons in designing low-power chips for cell phones, which need computer-like processing power and long battery life at the same time. Smooth-Stone says it will apply those lessons to chips used in data center computers, where energy use has become the biggest expense.

“Our goal is to completely remove power consumption as an issue for the data center. Imagine that change for companies with a large presence on the Internet,” added Evans. “They all deal with the reality that, as the mass of information grows daily, so does their power consumption. Every day these companies are thinking about managing their data center sprawl. We want to make sure that space and power are not constraining their potential.”

“Smooth-Stone’s approach of bringing low power technology into the server domain made them a perfect fit for our investment model,” said Bruce Beckloff, vice president of corporate business development at ARM. “There is a strong market need for a new class of data center platforms that offer a significant improvement in performance from both the energy and density perspectives, and ARM is excited to support Smooth-Stone’s efforts to develop innovative chip solutions for this new class of platforms.”

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