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Nov 27, 2018

Amazon unveils its own server chip, challenging Intel on price

The logo is displayed outside the company's fulfillment center in Kenosha, Wisconsin, U.S.

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See Full Stock Page » Inc. (AMZN.O) has taken a big step toward reducing reliance on Intel Corp. (INTC.O) for a critical component of its cloud-computing service.

The largest cloud company unveiled its own server processors late Monday and said the Graviton chips will support new versions of its main EC2 cloud-computing service. Until now, Amazon -- and other big cloud operators -- had almost exclusively used Intel Xeon chips.

Other attempts have so far failed to loosen Intel’s mighty grip on the server chip market. But Amazon is using a discounting strategy that has helped it win customers time and time again. The company said the Graviton-backed cloud service is available a "significantly lower cost" than existing offerings run on Intel processors.

Wells Fargo analyst Aaron Rakers estimated the new service will be up to 45 per cent cheaper than the equivalent offering based on Intel chips. "This will add another competitive question on Intel’s positioning within AWS Cloud," he wrote in a research note Tuesday.

It’s the second time this month that Amazon has taken a swing at Intel’s server chip business. The cloud provider said on Nov. 6 that it’s offering services based on computers that use Advanced Micro Devices Inc. (AMD.O) processors. That marked a breakthrough for AMD’s efforts to compete against Intel.

Amazon still expects Intel to be the major provider of chips for its cloud servers and high-end computing, said Matt Garman, a vice president at Amazon Web Services. But it decided to spend the money on creating its own designs because it saw a use case for rival technology and has the scale to make it worthwhile.

“We absolutely want to differentiate ourselves and meet any and all use cases that our customers come up with,” Garman said in an interview.

Intel processors run more than 98 per cent of the world’s servers, and owners of massive data centers such as Amazon, Microsoft Corp. and Google have become some of its biggest customers. While these internet giants have driven down the price of most components by doing a lot of their own engineering, Intel’s Xeon chips have resisted that pressure. The average selling price of these processors has risen over time, something that almost never happens in the electronic industry.

Analysts have speculated for years that these cloud companies would use their large R&D budgets and increasing technical abilities to find alternatives to Intel chips. They have come up with specific-use chips of their own, but Amazon’s Graviton is the first example of a major player using its own gear to replace a set of cloud workloads normally handled by an Intel Xeon processor.

Amazon is using its 2015 acquisition of startup Annapurna Labs to design its own chips. The new processor uses technology from SoftBank Group Corp. unit ARM Holdings, a standard that dominates in mobile phones. Graviton can run web services and other applications that are less intensive and perform well when many servers work together on the same task, Amazon said.