Big software companies don’t just stick to software any more—they build computer chips. The latest proof comes from Amazon, which announced late Monday that its cloud computing division has created its own chips to power customers’ websites and other services. The chips, dubbed Graviton, are built around the same technology that powers smartphones and tablets. That approach has been much discussed in the cloud industry but never tested at large scale.

Amazon’s surprise move echoes Google’s effort to create its own chips to power artificial intelligence algorithms running in its data centers, which it also rents out to cloud customers. Amazon says it took on the tricky business of chip design to better integrate the software and hardware inside its giant data centers, allowing it to offer new, cheaper services.

That’s not possible with off-the-shelf chips from Intel or AMD, which are designed to satisfy many different customers, says Matt Garman, a vice president involved with Amazon’s project. “We can do some very specific things that make sure the processor runs very efficiently in our environment,” he says. “That leads to lower costs.” Garman says customers with early access to Graviton-powered servers cut their bills for some services almost in half.

Although Amazon is best known for its online store, most of the company’s profits come from its cloud computing unit, Amazon Web Services. AWS makes money by renting out computing power and storage to other companies and government agencies. Those customers can now choose to rent servers powered by the Graviton chips. Amazon revealed the project Monday night at its annual re:Invent cloud computing conference in Las Vegas.

Garman says some customers have seen savings of 45 percent by switching to the new servers from existing Amazon offerings powered by conventional chips. Don MacAskill, CEO of the photo-hosting site SmugMug, said in a statement that his company had seen a 40 percent cost reduction by migrating some software to servers with the new chips. Garman says Amazon’s ecommerce division is looking at using Graviton servers, too.

News that Amazon has created its own server chips caught semiconductor experts unaware. Cloud companies typically assemble their infrastructure by buying hardware from specialists in chips, memory, and other devices. Designing a processor for servers is a complex project that likely took several years, says Kevin Krewell, principal analyst with Tirias Research.

Amazon says Graviton was created by a team that joined the company in 2015, through the acquisition of a startup called Annapurna Labs. The group had previously created small accessory chips for Amazon’s servers, not the complex CPU at the heart of a computer.

Taking on that more expensive and complicated component makes sense because of Amazon’s giant scale and the particular technology it built upon. Intel leads the server chip market; it customizes its chips for the biggest customers, including Amazon, but only in limited ways, says Krewell. With Graviton, Amazon has a chip that is better integrated to its server and software designs. “By building its own chip, Amazon has more control over its fate,” says Krewell. “I would expect them to continue.”

Others have pursued similar strategies. Google is on the third generation of its chips, which power machine-learning algorithms, making it cheaper to operate services such as voice recognition. Likewise, Apple has built every iPhone model since 2010 around a processor designed in-house, paving the way for new features such as Face ID and support for augmented reality. Amazon worked with the same Taiwanese chip manufacturer as Apple, TSMC, for its own chip project.

Amazon’s Graviton processor also breaks new ground by building on the ARM architecture used in smartphone processors but not previously widespread inside data centers. ARM chips are built on designs licensed by UK company ARM Holdings, which was acquired for $32 billion in 2016 by Japanese conglomerate Softbank. They are less powerful than top-end Intel processors, but also typically cheaper and more power-efficient. At Amazon’s scale, even small efficiency and cost savings can add up, says Krewell. AWS operates millions of servers around the globe.

Startups and mobile-chip companies have tried to market servers with ARM chips for years without much success, arguing that they can be cheaper and offer better power-efficiency. Microsoft has tested the idea in partnership with mobile chipmaker Qualcomm, but it has not launched the technology commercially.

Asked if Amazon plans successors to the initial Graviton chips, Garman responds cautiously. “I anticipate that we probably will,” he says. Patrick Moorhead, principal analyst at Moor Insights and Strategy says the company’s project could finally make ARM servers mainstream. He expects Microsoft to ramp up its own ARM project before long.

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