Amazon, the world’s largest online retailer and largest cloud-computing company, is pushing into a new line of work: computer chips.
Late last month, the company, based in Seattle, revealed that it had spent the last few years building a new chip for use inside the millions of servers in its data centers around the world.
Amazon does not plan to sell this chip directly to customers, but the decision by one of the world’s biggest buyers of computer processors to go the do-it-yourself route is likely to have a major impact on Intel, the iconic Silicon Valley chip maker.
Intel has struggled to keep up with recent technology trends, from the increasing use of mobile devices to artificial intelligence, as influence over chip designs has been shifting to Amazon, Apple and Google, which already dominate much of the rest of the tech industry.
Amazon’s new chip arrives as market forces are rapidly undercutting chip makers and their $412 billion in yearly sales. Online operations like Amazon and Google have grown so large, they can save significant money by making chips tailored to their needs rather than buying them from longtime suppliers.
The homegrown chip also gives Amazon bargaining power with Intel, which hasn’t had much competition in the server market in recent years. The internet company will still buy from Intel because it would be difficult to build all the chips it needed on its own. But now it will have options.
Intel acknowledges that companies like Amazon want to reduce their dependency on one big chip supplier. “I am not unaware of the dynamic,” Lisa Spelman, an Intel vice president, said. “Our goal is to understand and respectfully acknowledge that desire.”
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, said Shane Rau, a chip analyst with the research firm IDC. That just one of them is shifting its business is terrible news for Intel.
“Each one of these companies is so large, they represent a market unto themselves,” Mr. Rau said.
In recent years, Google has designed specialized chips for artificial intelligence technology. Facebook and Microsoft, which like most internet companies are major buyers of chips from Intel, have indicated that they are working on similar AI chips.
Apple beat the other tech giants to this cost-saving trend four years ago when it unveiled its first custom-built chip for the iPhone. Google and Microsoft are also building the chips that go into devices like smartphones and virtual-reality headsets.
Amazon has upped the ante. In 2015, it spent a reported $350 million to acquire a chip maker, Annapurna Labs, which helped build the new central processing unit, or CPU.
A CPU. — the centerpiece of a computer’s operations — is the sort of chip that Intel has made for decades to run personal computers and servers. Building these chips requires rare expertise and hundreds of millions of dollars in capital. It is a big step up in complexity from building chips tailored to certain tasks.
“The belief was that you needed some magic to build a processor, particularly a server processor,” said Andrew Feldman, the chief executive of the chip start-up Cerebras and a former executive at the chip maker AMD. “You had to be Intel or AMD — and that was about it.”
Amazon executives believe the chip, which was designed to be more energy efficient, will help reduce the cost of electrical power in its data centers. It said it was offering a cloud-computing service that would allow business customers to use its new chip. The cost of the service could be 45 percent lower than other options.
And when Amazon buys chips from other companies, a homegrown option gives it even more sway over prices. “They can now say to Intel, ‘We will just move the workloads to other chips,’” Mr. Feldman said.
Amazon has also designed a chip for artificial intelligence, called the Inferentia. In a recent blog post, James Hamilton, vice president and distinguished engineer inside Amazon’s cloud computing arm, said the company would continue building new chips for artificial intelligence and other specialized tasks.
Google has designed three generations of AI chips, and it has long hinted that it will eventually build a CPU. “That’s not rocket science,” a Google chip specialist, Dave Patterson, said late last year.
Though it is still enormously difficult, building a chip is easier than it used to be. Amazon licensed much of the technology from ARM, the company that provides the basic technology for most smartphone chips. It made the chip through TSMC, a Taiwanese company.
For Intel, Amazon’s move into CPU.s is a strike at a longtime strength. Intel was beaten to the smartphone and tablet market a decade ago, a significant missed opportunity. The tech industry shifted, and Intel didn’t shift with it.
But Intel has a 96.6 percent share of server chip sales, according to IDC. It was 98.6 percent until its longtime competitor, AMD, which had stayed on the sidelines of the server business for about a decade, recently re-entered the market.
Intel’s profits continue to rise with the rapid expansion of the tech industry. But the financial results of its most recent quarter highlight the chip maker’s dependence on servers. Intel’s data center group, which sells both server and AI chips, pulled in $6.1 billion, a 26 percent increase over the previous year. The group now accounts for more than 30 percent of Intel’s revenue.
As the chip market has changed, Intel has tried to diversify. In recent years, it bought three companies that design chips for artificial intelligence and other types of hardware that are becoming increasingly important inside smartphones, cars and data centers.
The competition outside of traditional server chips is extensive. In addition to Amazon, Google and Nvidia — the dominant maker of specialty chips for tasks like AI — dozens of smaller companies are building AI chips.
Through their fast-growing cloud computing services, Amazon, Microsoft, Alibaba and Google are reinventing how companies set up their computer networks. Going to a cloud service allows companies to wash their hands of acquiring and maintaining back-room computer systems — the tech experts do it for them.
It is a lucrative business. Amazon Web Services brings in nearly $27 billion a year, and it accounts for 56 percent of Amazon’s profits.
Inside these cloud operations, the internet companies are also reinventing how computers are built. They are designing much of their own hardware, from the servers to the networking gear that connects servers. Facebook is doing similar work with the technology in its data centers.
Amazon’s new chip is running only a small fraction of the software across the company’s online empire. But that is expected to expand.
“We will look back at this as a watershed moment,” said Mr. Feldman, the chief executive of Cerebras.