On Wednesday, an Amazon.com Inc. AMZN unit, quite against its practice, disclosed plans to market computer chips and associated components to other companies.
Amazon’s subsidiary, Annapurna Labs, announced that it is making a line of microprocessors — Alpine — that it plans to sell to manufactures as well as data centers.
According to Bloomberg, the chips, built on microprocessor giant ARM Holdings’ ARMH designs, can be integrated into Internet of Things devices, stream videos, and even run data centers.
The new line of chips, with up to four processors and a variety of networking technology, can enhance the performance of routers as well as home products that presently have only limited computing power.
As per Bloomberg, the chips are meant for low-power devices for storage and networking. However, Amazon will be competing with Intel INTC, which serves the high-end server market as well. Intel is trying to build a position in IoT and that segment is doing moderately well.
Intel, the world's biggest supplier of PC chips, is a market leader in data center computing, while ARM has a strong command over the mobile arena. And Annapurna is also for the data center, so although it won’t show in the near term, it is likely to grow into a competitive threat for Intel.
No One can Eat just One
Even though Amazon is just testing the waters in the chipmaking business with this move — we doubt that it will stop at just this one!
We believe that over the long term, it could move deeper into the chip market, posing a threat to Intel eventually. This is because Amazon has an ever-increasing presence in the cloud computing market. Though Amazon uses custom chips made by Intel, Alpine chips based on ARM’s chip designs can help it move away from Intel's products in the future.
However, we believe that Amazon must tread cautiously, as it has “Intel- Inside”.
Amazon currently holds a Zacks Rank #2 (Buy).
Investors may also consider the potential competitor of Amazon in this field, Qualcomm Inc. QCOM, as it holds the same Zacks Rank.
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