Intel buys networking chipmaker because the data center is now the computer

Updated: Surely but slowly, Intel (s intc) is coming to the realization that cloud, not PC, is where computing’s future lies. And perhaps there is no better testament to this move than the most recent acquisition of an Ethernet silicon company. As data centers become increasingly important hubs of computing, companies from an earlier era — from Verizon (s vz) to Intel — are making bold moves into the data center.

Intel’s decision to buy Fulcrum Microsystems is important and needs to be underscored. Why? Fulcrum makes silicon for Jayshree Ullal’s and Andy Bechtolsheim’s 10 Gigabit, high-performance switch company Arista Networks. The move is a forward-thinking one by the computer chip vendor, as virtualization continues changing the computing landscape. Fulcrum has been around for more than a decade and has raised at least $35 million in venture capital in its 11-year history. From Intel’s release on the acquisition:

“Intel is transforming from a leading server technology company to a comprehensive data center provider that offers computing, storage and networking building blocks,” said Kirk Skaugen, Intel vice president and general manager, Data Center Group. “Fulcrum Microsystems’ switch silicon, already recognized for high performance and low latency, complements Intel’s leading processors and Ethernet controllers, and will deliver our customers new levels of performance and energy efficiency while improving their economics of cloud service delivery.”

Intel’s moves here come amid a shift in the way applications think about architecting their services. Where once a server was an individual computer that ran applications, for cloud computing and large web scale applications such as Facebook, Google (s goog) or Twitter, they are now components in a much larger system. Google first outlined this shift, but Facebook recently has built upon it with its Open Compute project that basically rethought the way the social network built its hardware and deployed it in a data center and then opened up that design for input and adaptations.

Open Compute left Intel’s (and AMD’s) (s amd) chip business alone, while putting the margins of systems purveyors such as HP (S hpq) and Dell (s dell) at risk. However, as other silicon companies such as ARM, (s armh) Tilera advance, Intel must rethink its value proposition beyond the x86 CPU, much like its customers Dell and HP are now rethinking their value proposition beyond making servers. It’s also looking ahead to the changes that virtualization has wrought in the networking world, where efforts to separate the software that controls where packets go from the switches do the physical routing. This shift is occurring in part because as the data center become a computer, it needs a new way to communicate between nodes (servers). Thus, the rise of fabrics inside next generation servers and inside the data center.

And so back to Intel, which has seen this happening and wants to make sure it has the ability to provide the computing and networking brains inside the new version of the data center. For Intel, the acquisition of Fulcrum enables it to own one more component inside a rapidly commoditizing — but rapidly growing — market. So perhaps we’ll see Intel design a single system on a chip that offers what essentially is a data center on a chip.

Update: Looks like Arista’s Ullal agrees. She emailed GigaOM saying that deal was great for the industry because it validates the concept of merchant silicon as opposed to the specialized chips that Cisco and other networking vendors built. It also moves Intel into the networking sector helping it diversify. Now switch builders can choose from silicon from Intel, Broadcom (s brcm) or Marvell (s mrvl). She added, “This is great for Arista as Fulcrum now has backing of Intel (and truly address the enterprise to cloud networking migration in a mainstream manner). Arista has been one of Fulcrum’s top customers.”