Already the largest provider of cloud computing and data storage technology and services, Amazon released its own Graviton chip to support new versions of its cloud technology.

Amazon.com Inc. has taken a big step toward reducing reliance on Intel Corp. for a critical component of its cloud-computing service.

The largest cloud company unveiled its own server processors late Monday and said the Graviton chips will support new versions of its main EC2 cloud-computing service. Until now, Amazon—and other big cloud operators—had almost exclusively used Intel Xeon chips.

Revenue at Amazon Web Services, Amazon’s cloud technology unit, meanwhile, is expected to reach $71 billion by 2022, giving it a valuation of about $350 billion, Jefferies analyst Brent Thill wrote in a recent note after attending Amazon’s cloud conference in Las Vegas. One of Amazon’s cloud growth areas is in serving government agencies,  a market where it is said to be favored to win a large Pentagon contract.

Other attempts have so far failed to loosen Intel’s mighty grip on the server chip market. But Amazon is using a discounting strategy that has helped it win customers time and time again. The company said the Graviton-backed cloud service is available a “significantly lower cost” than existing offerings run on Intel processors.

It’s the second time this month that Amazon has taken a swing at Intel’s server chip business. The cloud provider said on Nov. 6 that it’s offering services based on computers that use Advanced Micro Devices Inc. processors. That marked a breakthrough for AMD’s efforts to compete against Intel.

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Intel processors run more than 98% of the world’s servers, and owners of massive data centers such as Amazon, Microsoft Corp. and Google have become some of its biggest customers. While these internet giants have driven down the price of most components by doing a lot of their own engineering, Intel’s Xeon chips have resisted that pressure. The average selling price of these processors has risen over time, something that almost never happens in the electronic industry.

Analysts have speculated for years that these cloud companies would use their large R&D budgets and increasing technical abilities to find alternatives to Intel chips. They have come up with specific-use chips of their own, but Amazon’s Graviton is the first example of a major player using its own gear to replace a set of cloud workloads normally handled by an Intel Xeon processor.

Amazon is using its 2015 acquisition of startup Annapurna Labs to design its own chips. The new processor uses technology from SoftBank Group Corp. unit ARM Holdings, a standard that dominates in mobile phones. Graviton can run web services and other applications that are less intensive and perform well when many servers work together on the same task, Amazon said.

Hybrid cloud strategies

Amazon also said this week that it will let customers put servers used in the company’s cloud-computing data centers into their own facilities, an effort to reach businesses that want to store some of their technology functions in the cloud while keeping tighter control of others.

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The move announced Wednesday by Amazon Web Services CEO Andy Jassy helps provide hybrid-cloud strategies desired by many larger enterprise customers in an area where cloud-competitor Microsoft Corp. is making headway.

Amazon’s announcement represents a continued shift for the Seattle-based company, which once preached the mantra of moving everything to the public cloud, and a boon to VMware Inc., majority owned by Dell Technologies Inc., which is looking for ways to keep growing. The AWS hardware put into customer data centers as part of this offering will have VMware software on it. Both companies will sell the new product and share revenue, said VMware CEO Pat Gelsinger.

“It’s a pretty big statement to the industry at large — now Amazon is going to become an on-premise hardware vendor,” Gelsinger said.

AWS announced a slew of other new or updated offerings at its cloud-computing conference in Las Vegas, seeking to maintain its lead in the market for internet-based computing.

Glacier Deep Archive is a data-storage service coming in 2019 that is about a fourth of the cost of Amazon’s current storage pricing, Jassy said. Amazon FSx for Windows File Server is a Windows-compatible service that may help Amazon win cloud-computing customers who might otherwise shift to Microsoft’s Azure. New services for machine learning, a powerful type of artificial intelligence software. AWS announced Inferentia, its first chip for drawing inferences from data, which will go on sale next year. The company also unveiled a service to make it faster and cheaper to use machine learning algorithms in Amazon’s cloud. Amazon Managed Blockchain, a new service that can be used to manage peer-to-peer payments, process loans and help businesses transact with distributors and suppliers.

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Amazon uses the annual re:Invent conference to highlight new tools and features, seeking to stay ahead of cloud rivals Microsoft and Alphabet Inc.’s Google. The global public cloud market will grow to $278 billion in 2021, up from $176 billion this year, according to Gartner Inc.

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