Intel: Here Come The Custom Chips

Dec. 11, 2019 10:02 AM ETIntel Corporation (INTC)GOOG, MSFT, AMZN113 Comments
Kwan-Chen Ma profile picture
Kwan-Chen Ma


  • Whether Amazon’s Graviton2 will be the game changer for the CPU market remains to be seen, Intel has to be sensitive to the emerging trend of customers’ designing proprietary chips.
  • Intel’s large cloud customer Amazon’s Graviton2 stands to take away $120 million immediate revenue from Intel. Google’s TPUs may take $650 million, and Microsoft’s FPGAs may take $700 million.
  • The wide uses of custom chips are restricted by their customized nature. Intel has about 2% revenue exposure on the custom chips from the 3 cloud providers.
  • Merchants developing their own proprietary silicon, i.e., Apple, should be a more alarming trend. Currently, Intel has about 4%, or $2.5 billion annual revenue exposure potentially to Apple’s SoC/SiP chips.

Large cloud providers such as Amazon (AMZN), Google (GOOG), and Microsoft (MSFT) have been rapidly developing their proprietary processors and AI accelerator chips. For one, Amazon recently fired the first shot at Intel’s (NASDAQ:INTC) x86-based instance by designing a second generation of data center processor chip, Graviton2. Whether Amazon’s deepening chip portfolio becomes a long-term threat to Intel’s CPU business remains to be seen, but the immediate revenue impact can be realistically estimated. In this post, I aim to access the near-term revenue impact of the customized chips on Intel.

Amazon’s Graviton2

This is a custom AWS design that is built using a 7nm manufacturing process. It is based on 64-bit Arm Neoverse cores, delivering up to 7x the performance of the A1 instances. Additional memory channels and double-sized per-core caches speed memory access by up to 5x. The 7nm chip offers up to 40% better performance from comparable x86-based instances, 20% faster than Amazon's first ARM-based chip, Graviton, with a 20% lower cost. AWS services like Amazon Elastic Load Balancing, Amazon ElastiCache, and Amazon Elastic Map Reduce have tested the instances and will move into production next year. At this stage, Graviton2 is still restricted to Amazon’s internal use. Based on the estimates of Bloomberg Supply Chain Database (SPLC), Intel currently has approximately 0.18% or $29 million revenue exposure with Amazon for the most recent quarter (Table 1). It may be safe to speculate that this is the maximum of the immediate revenue impact for Intel with Amazon.

Google’s TPUs

Google’s Tensor Processing Units (TPUs) was created to improve applications that use artificial intelligence to do things like recognize words people are saying in audio recordings, spot objects in photos and videos, and pick up underlying emotions in written text. The chips represent an alternative to Nvidia’s GPUs. Also, if the new version is anything like

This article was written by

Kwan-Chen Ma profile picture
K C Ma, Ph.D, CFA, is the Eminent Scholar and the Mary Ball Washington/Switzer Brothers Endowed Chair of Finance at University of West Florida. I am the Director of Argo Investments Institute which enables college students to manage real money stock, bond, and option funds. I manage market-neutral institutional hedge funds in KCM Asset Management. I write about stocks, bonds, and derivative strategies, long or short, based on our quantitative processes.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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