Amazon To Sell Chips. No, Not Potato Chips

Semiconductor wafers, electrical components containing a solid crystalline substance possessing electrical conductivity greater than that of insulators but less than that of good conductors.
Photograph by Will & Deni McIntyre — Getty Images/Photo Researchers RM

Amazon’s Everything Store will soon include a line of chips, but not the edible kind.

The e-commerce giant’s subsidiary, Annapurna Labs, is developing a line of microprocessors that it will sell to manufacturers and data center companies, according to Bloomberg News. The chips are reportedly based on designs from microprocessor giant ARM Holdings and can be integrated into Internet of things devices, stream videos, or run data centers.

This isn’t the first news of Amazon’s foray into chip development. Fortune’s Stacey Higginbotham reported in 2014 that the company was looking into developing server chips. At the time, Amazon hired a number of chip engineers who previously worked at Calxeda, the former ARM-based server startup.

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Amazon’s new chip business will join the likes of chip giant Intel (INTC), which currently commands 99% of the server chip market share. But it doesn’t appear that Annapurna Labs’s chips will have much crossover with Intel’s offerings.

According to Bloomberg, the Alpine chips are geared towards “low-power computers” for storage and networking. Annapurna will also let manufacturers develop their own versions of its chips.

Amazon is increasingly creating and selling items under its own brand, including tablets, e-readers, and phones. But this would mark Amazon’s first foray into the server chip market, which is estimated at $12 billion.

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The news also comes after an analyst dropped his rating for the e-commerce giant because of concerns about slower growth.

James Cakmak, with brokerage firm Monness Crespi Hardt, dropped Amazon’s rating from “buy” to “neutral,” citing concerns about the rising costs for its cloud computing business and for developing original shows to stream on its Prime subscription video service. Amazon’s shares dropped 6% following the report.

Amazon’s shares (AMZN) were up 0.32% to $634.68 per share in after hours trading on Wednesday.

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