Chip Giant Intel and Nvidia Face New Threat from Amazon to Google to Apple

The world’s largest semiconductor companies face an increasing competitive threat: their largest customers make their chips in line with the supercharged areas of cloud-computing and artificial intelligence.

Chip making has long been practiced by large manufacturers and design houses such as Intel. Corp.

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, Advanced Micro Devices Inc.

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And graphics-chip maker Nvidia Corp.

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Now Inc.

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Microsoft Corp.

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And Google is getting into the game for performance improvements and lower costs, shifting the balance of power in the industry and pushing traditional chip makers to respond by building more specialized chips for key customers.

Amazon unveiled a new chip this month that, it says, promises to convey that algorithms that use artificial intelligence learn from data. The company has already designed other processors for the cloud-computing arm, called Amazon Web Services, which also includes the brains of computers known as central processing units.

The epidemic has accelerated the rise of cloud-computing as companies largely adopted digital devices using those remote servers. Amazon, Microsoft, Google and others have enjoyed strong growth in the cloud during the remote-work period.

Business customers are also showing an increased appetite for analyzing data collected on their products and customers, which increases demand for artificial intelligence tools to understand all information.

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Google was an early mover in the tech giants releasing AI processors in 2016, and has updated the hardware several times. At No. 2 in the cloud behind Amazon, software giant Microsoft has also invested in chip designs, including a programmable chip to handle AI and another that enhances security. It is also now working on a central processor, according to a person familiar with its plans. Bloomberg News previously reported Microsoft’s CPU effort.

Changes in the moves of tech giants have driven the world of semiconductors and Moore’s rule — the region’s fundamental assumption about continuous improvement in chip performance — is losing relevance. As a result, companies are finding new ways to perform better, not always measured in speed, but sometimes with less power consumption or heat generated.

Parth Ranganathan, vice president and engineering fellow at Google’s cloud unit, said, “Moore’s law has been around for 55 years, and this is the first time it has been very physically slow.”

‘While Intel was an order of magnitude greater than all its customers in the 1990s, the customer now has a better scale than the supplier. As a result, they have more capital and more expertise to take components in-house. ‘

– James Wang of ARK Investment Management

The sheer size of cloud giants presents a challenge for traditional chip producers. In the past, semiconductor manufacturers designed their high-performance semiconductors for generic applications, leaving customers to adapt and get the maximum benefit from chips. The largest customers now have the financial muscle for more customized designs.

New York money manager ARK Investment Management analyst James Wang said, “Intel was bigger than all of its customers in the 1990s, now the customer has a better scale than the supplier.” “As a result, they have more capital and more expertise to take components in-house.”

Nvidia, now the largest US chip maker by market cap, is valued at $ 330 billion and Intel at $ 207 billion. Cloud behemoths, Amazon, Microsoft and Google-parent Alphabet Inc.

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Each top $ 1 trillion in market valuations.

Bespoke efforts have been partly made possible by the rise of contract chip makers, which make semiconductors designed by other companies. This arrangement helps tech giants avoid the multi-dollar costs of building their own chip factories. Taiwan Semiconductor Manufacturing Co.

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In particular, chip production technology has jumped to the forefront.

These changes have benefited the chip-design firm Arm Holdings Ltd, which sells circuit designs, which anyone can use after paying license fees. Apple is a big arm customer, as are all the big tech companies that make their own chips.

Amazon, Google, and Microsoft are each projected to operate millions of servers in their globally-spread network of data centers for their own use and to hire millions of their cloud-computing customers. Even small improvements in performance and minute reductions in the cost of power and cooling chips become worth the effort to spread to those vast technology empires. Facebook Inc.

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It is also explored working on its own chips.

David Brown, vice president of AWS, said that building its own processor was an obvious choice for Amazon because it could get performance gains to achieve compatibility with older software and other standard features of Intel chips that large data center operators need is not needed.

“We were able to build a [chip] It is optimized for the cloud, so we were able to extract a lot of stuff that is not needed right now, ”he said. Amazon’s chip-making efforts largely stopped with the acquisition of an Israeli company called Annapurna Labs about five years ago.

Custom chips are also gaining compatibility in consumer products. Apple started using its own processor from Mac this year, which they got 15 years after sourcing from Intel. Google has included AI chip in its Pixel smartphones.

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So far, lost business for traditional chipmakers has been modest, said chip-industry analyst Linley Guenap. He said that all custom-made, arm-based central processors have a market share of less than 1%. Google’s AI chips are the highest-volume tech-company-designed processors ever, he said, adding that at least 10% of all AI chips are included. Intel still supplies the vast majority of CPUs that go to data centers.

In the race for clouds and AI chip supremacy, mandarin is not sitting idle. Nvidia agreed to buy the arm this year in what would be the chip industry’s biggest acquisition. And Evan Buck, who oversees Nvidia’s data center business, said the company is working closely with its largest customers to optimize the use of their chips in their hardware setup.

Intel said that about 60% of the central processors of its servers sold to large data center operators adapt to the needs of customers, often by turning off chip features they don’t need.

And Intel has invested in AI processors and other specialized hardware of its own, including buying Israel-based Havana Labs for about $ 2 billion last year. AWS recently agreed to keep Habana’s AI training chips in its data centers, as Amazon develops its rival chips that it thinks will perform better when they appear next year.

Remy El-Oyazane, chief strategy officer at Intel’s data platform group, said that longtime players in the AWS market could challenge Nvidia, a key player in the AI ​​training market, that by 2024 would be worth more than $ 25 billion. “It’s a big net new opportunity for Intel, and it’s a huge market,” he said.

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Write Asa Fitch at [email protected]

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