Does Amazon’s Recent Chip Move Raise Concerns for Intel?
Amazon Diversifies, Expands Services, Optimizes Delivery
Amazon to develop in-house chip
Amazon (AMZN) has come a long way since its original adventure into online book sales. Amazon has since branched into several markets, including online retailer sales, cloud computing, video streaming, tablets, and smartphones. Now the company is targeting a new chip called Alpine to cater to OEMs (original equipment manufacturers) and data center operators.
In 2015, Amazon acquired Annapurna Labs, an Israel-based chipmaker, for $350 million. Annapurna is using technology pioneered by ARM Holdings (ARMH) to manufacture low-end computing devices such as Wi-Fi routers, storage devices, and connected home products referred to Internet of Things. Intel (INTC) had made several attempts to grab the ARM market for smartphone devices with its Atom processor, primarily designed for tablets, smartphones, and other handheld devices. More than likely, Amazon will use its in-house chips in its products such as the Kindle Fire and the Fire Phone.
Intel has 99% market share
Amazon’s entry into the chip manufacturing market could raise challenges for Intel, which dominates the market for server chips used in data centers. However, ARM’s chips are primarily focused on low-end devices and have so far failed to take away Intel’s market for power chips designed for data centers, for which Intel has a 99% market share.
Amazon Web Services is hiring semiconductor engineers to strengthen its cloud computing unit to customize hardware for better cloud delivery. By acquiring Annapurna Labs, Amazon can leverage its technical know-how to develop technologies for internal use. It will do this in the same way it transformed its internal warehouse with a robot developer after acquiring Kiva Systems for $775 million.
Amazon (AMZN) and Advanced Micro Devices (AMD) are part of the iShares Dow Jones US ETF (IYY). They account for 1.2% and 0.01% of the ETF, respectively.
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