2 weeks Ago By Thomas Claburn
Arizona electronics supplier Avnet has accused California semiconductor design firm Ampere Computing of going against its word and backing out of a server purchasing deal. As Avnet recounts in its lawsuit [PDF], brought against Ampere in northern Cali this month, the dispute began in early 2021 when Ampere is said to have been looking for a way to increase the revenue it derives from selling its Arm-based Altra processors . Ampere, the complaint explains, settled on a strategy of issuing purchase orders to original design manufacturers (ODMs) for barebones servers.
These servers – so-called level six machines , meaning they come with an integrated motherboard and chassis but lack a CPU, memory, and other components – could accept Altra processors and then be placed with original equipment manufacturers (OEMs), system integrators, and end users. To seed the market with Altra-ready servers, Ampere would turn to Gigabyte, a Taiwan-based ODM. Ampere, acquired in March by Arm-owner SoftBank, aimed to place purchase orders with Gigabyte for thousands of servers in 2021 and 2022 so it could then transfer those purchase orders to various OEMs and system integrators who would sell the boxes to customers.
All of this was supposed to fuel sales of its Altra chips. The problem Ampere faced, according to the complaint, was that the technology market had not recovered from the supply chain disruption brought about by the COVID-19 pandemic. And due to supply constraints that affected the server business, server makers including Gigabyte had to be selective about the orders they fulfilled.
Founded in 2017, Ampere was a relatively new company and did not have a long-running relationship with Gigabyte. As a result, the legal filing says, the initial purchase order plan wouldn't fly. "Gigabyte was unwilling to accept direct [purchase orders] from Ampere unless Ampere agreed to certain business terms which Ampere was unwilling to accept," the complaint says.
"As a result, Gigabyte would not accept Ampere’s [purchase orders]." To work around this, the complaint explains, Ampere turned to Avnet and Phoenics Electronics – a subsidiary at the time that fully merged into Avnet in 2024 – because the two firms were distributors of Ampere Altra products. Avnet and Phoenics had a collective market presence of more than hundred years and a strong relationship with Gigabyte.
To benefit from that relationship and have its kit made under more favorable terms, Ampere allegedly wanted Phoenics to place its server orders with Gigabyte. Phoenics, however, didn't want to accept the financial risk of placing orders for servers that might not sell. Ampere would commit to repurchase 75 percent of servers that remained unsold after 90 days "Accordingly, Phoenics would only agree to this fronting arrangement – whereby Phoenics would place the [purchase orders] directly to Gigabyte instead of Ampere placing the [purchase orders] itself – if Ampere would commit to repurchase 75 percent of servers that remained unsold after 90 days.
" This "backstop" arrangement is said to have been presented to Ampere on April 16, 2021, and the lawsuit claims that in April and May 2021 Ampere executives confirmed this agreement multiple times orally and in writing. By June 2021, Ampere had sent a $4 million proposal to Phoenics to purchase 3,000 Altra processors. Phoenics responded with a counterproposal.
Phoenics made an explicit condition that “[t]he backstop proposal is confirmed by Ampere," the complaint says. In a June 25, 2021 email, Ampere executives pushed for trust, and reiterated their commitment to the "backstop" deal. So Phoenics spent $4,016,085.
00 for 3,000 Altra processors and placed purchase orders with Gigabyte, under the belief that Ampere would buy back 75 percent of servers that did not sell within 90 days. Well, those servers didn't sell as well as hoped, we're told, and allegedly, Ampere didn't honor the deal to repurchase 75 percent of unsold inventory held by Phoenics. What's more, the complaint contends, Ampere also reneged on its Sales Distributor Agreement (SDA), specifically a clause in which it commits to crediting distributors the difference between the amount paid for a product and a subsequent manufacturer price reduction affecting distributor inventory.
Avnet claims it is owed $375,034 as a result of a price decrease for certain Ampere products that took effect July 1, 2023. Avnet is seeking damages of not less than $3.3 million, alleging breach of contract, unjust enrichment, and fraud among other claims.
Neither Avnet nor Ampere responded to requests for comment. ®.
