Microsoft has asked Intel to develop a 16-core Atom chip for use in servers.

The new chip is part of a wider effort by the software maker to reduce power consumption in its data servers. Intel’s low-power Atom chips are considered much more energy-efficient than powerful processors such as the Xeon range. Dileep Bhandarkar, an engineer at Microsoft’s Global Foundation Services, reaveled the company’s request during a speech at The Linley Group Data Center Conference in Silicon Valley.

“When you look at these tiny cores, another way of making them work in a very efficient way is [not to] surround them with a whole bunch of south bridges and network controllers. … Essentially, the tiny cores and systems-on-chip should go together,” said Bhandarkar.

Industry experts and analysts warn that ARM based vendors are gradually positioning themselves to target the profitable server market. “I think Intel is going to have to do it at some point. We’re seeing more of the ARM guys going after the server market and just to compete on power performance per watt, Intel is going to have to rely on the Atom CPU,” said Linley Gwennap, founder and principal analyst at The Linley Group.

The draw back to ARM-based servers is the performance cost. “Instruction-set transitions are extremely painful,” Bhandarkar said. “As a general rule of thumb, you have to have a sustainable improvement per dollar per watt of at least 2x — some would say 5x — but it’s at least 2x” to make it worthwhile said Bhandarkar.

PCWorld notes that processors are only a part of Microsoft’s energy-efficiency efforts. Microsoft has installed servers with no fans, CD/DVD drives, fewer DIMM slots and PCI cards to combat energy costs.