Microsoft Corp. today announced that it has acquired Fungible Inc., a venture-backed data center chip startup. 

The financial terms of the acquisition were not disclosed. However, Blocks and Files reported that the transaction is valued at $190 million. Microsoft will implement Fungible’s technology in the data centers that power its Azure cloud platform. 

In addition to running applications, data center servers perform a variety of supporting tasks. They encrypt the network traffic generated by the applications they run to reduce the risk of hacking. In conjunction, network traffic is scanned for breach indicators and compressed, which helps optimize bandwidth usage. 

Santa Clara, California-based Fungible has developed a specialized chip that can offload such supporting tasks from a server’s central processing unit. The startup refers to its chip as a data processing unit, or DPU. Fungible says that offloading encryption operations and other supporting tasks from a server’s CPU to a DPU makes more computing capacity available for applications.

According to the company, its technology can reduce data center costs by increasing operational efficiency. Furthermore, Fungible promises to ease day-to-day server management in the process. 

The startup says its DPU can increase the efficiency of not only servers but also storage infrastructure. Fungible has built a flash storage system, the Fungible Storage Cluster, that uses its DPU technology to compress data and run erasure coding algorithms. Erasure coding is a method of ensuring that information remains available in the event of a hardware malfunction. 

The company says a single Fungible Storage Cluster system can perform up to 13 million data input and output operations per second. The platform also promises to deliver higher power-efficiency than some competing products. 

According to Blocks and Files, Microsoft had at one point considered partnering with Fungible to develop custom chips. The technology giant later decided to opt for an acquisition instead of a partnership. In the wake of the deal, Fungible’s employees will join Microsoft’s data center infrastructure engineering group.

“Today’s announcement further signals Microsoft’s commitment to long-term differentiated investments in our datacenter infrastructure, which enhances our broad range of technologies and offerings including offloading, improving latency, increasing datacenter server density, optimizing energy efficiency and reducing costs,” said Girish Bablani, the corporate vice president of Azure Core.

In 2020, reports emerged that Microsoft Corp. was seeking to develop custom processors for its Azure Cloud platform. The technology and chip design expertise that the company has gained through the purchase of Fungible could advance its processor development efforts.

Microsoft’s major competitors in the cloud market already use custom chips in their data centers. Amazon Web Services Inc. offers multiple cloud instances that run on internally developed processors. Google LLC’s cloud business, in turn, provides access to Cloud tensor processing units, custom chips designed by its engineers to speed up artificial intelligence workflows. 

Microsoft’s acquisition of Fungible comes a few weeks after it purchased Lumenisity Ltd., another data center hardware startup. Lumenisity developed high-speed networking cables for connecting data center systems with one another. According to the startup, its technology is 50% faster than traditional fiber optic cables.

Photo: Microsoft