Chip development

Amazon is making its cloud business increasingly autonomous, reducing risk and dependence on semiconductor manufacturers. After developing its own processor chips for data centres, Amazon has moved on to developing chips to power networks.

Cloud computing company Amazon (AMZN) Web Services is the world's largest provider of cloud computing services and aims not to depend on semiconductor manufacturers. The Information reported on Tuesday that a team from Annapurna Labs, acquired by Amazon in 2015, is working on chips to power networks that will help reduce AWS's reliance on Broadcom's (AVGO) supply. Broadcom has supplied Amazon with chips in bulk for years, which has been advantageous compared to buying more expensive networking chips from Cisco Systems (CSCO) and Juniper Networks (JNPR). However, according to media reports, the relationship between the companies' executives is strained and Amazon has long been considering alternative partners.

In 2019, to reduce its reliance on expensive Intel (INTC) chips for its data centres, AWS developed its own chip based on Arm Holdings' technology.

Broadcom shares were down 3.64 per cent at the close of trading on Tuesday, amid the news. Broadcom shares have gained almost 105% in the past 12 months.

Analysts view Broadcom's latest quarterly results positively and point to the chipmaker's advantageous position amid a global semiconductor shortage. Amazon shares are down 6.2% since the start of 2021 and closed with a small drop on Tuesday. While Amazon shares are still 55.6% higher than they were 12 months ago, they have been "trading in a corridor" for the past six months and some analysts say investors are no longer surprised by the company's rise amid the COVID-19 pandemic and need a meaningful new boost to the stock.

AWS' main competitor, Microsoft (MSFT), which also uses Intel chips for its data centres, is, according to media reports, replicating Amazon's experience and developing its own microprocessors for servers.