Tech Companies Challenge Intel by Building Their Own Chips

Amazon revealed last month that it had spent the previous few years building a chip for use in its worldwide data centers. It’s not alone; Apple and Google also seek to design and manufacture their own chips, as part of a cost-saving strategy. Intel, which thus far hasn’t had much competition, will feel the impact as its own customers undercut the company’s annual $412 billion in sales. Amazon’s massive need for chips means it will likely continue to buy from Intel, with which it will enjoy a better bargaining position.

The New York Times reports that, according to research firm IDC’s Shane Rau, “about 35 percent of the server chips sold around the world go to about 10 companies, including large Internet companies like Amazon and a handful of telecommunication firms.”

As to the new pressures, Intel vice president Lisa Spelman said she is “not unaware of the dynamic.” “Our goal is to understand and respectfully acknowledge that desire,” she added. Ten years ago, Intel missed a massive opportunity when it “was beaten to the smartphone and tablet market.”

Since then, Apple debuted its first custom-built chip for the iPhone four years ago, and Google and Microsoft are working on chips for smartphones and VR headsets. Amazon built an AI chip, dubbed Inferentia, and Google is on its third generation of AI chips. Facebook and Microsoft indicate they are also working on AI chips.

Amazon vice president/distinguished engineer in cloud computing James Hamilton said the company will continue to build AI and other specialized chips.

To build a CPU, Amazon licensed technology from ARM, and then purchased Annapurna Labs for $350 million in 2015. That was a big step since, as chip startup Cerebras chief executive Andrew Feldman puts it, “the belief was that you needed some magic to build a processor, particularly a server processor.” “You had to be Intel or AMD — and that was about it,” he said.

Now that Amazon has a chip that “was designed to be more energy efficient, [and] will help reduce the cost of electrical power in its data centers,” the cost of its cloud-computing service “could be 45 percent lower than other options.” “They can now say to Intel, ‘We will just move the workloads to other chips’,” said Feldman.