Amazon is developing a custom chip for its data centers.

A key reason why Amazon is one of the world’s most successful companies is that it continually strives to optimize its operations. Indeed, in recent months, the Big Tech firm has invested millions to streamline its logistics and warehouse segments.

Now, the corporation is looking to improve its lucrative web services business by developing a new data center processor.

On Wednesday, Reuters reported that Amazon is developing an ARM-based cloud computing chip to replace its Graviton processor. Details about the new component are scarce, but the news agency noted that it is, at minimum, 20 percent faster than its predecessor.

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Why Amazon is Developing its Own Data Center Processors

America’s largest e-commerce company is dedicating resources to developing cutting-edge semiconductors to cut costs and increase revenue.

For one, Amazon’s core online shopping business isn’t as lucrative as it once was. In the third quarter, the corporation reported a 26 percent year-on-year decrease in income. The firm experienced a decline in profits because it spent so much money expanding its logistics operations. While Amazon’s new one-day delivery increased revenue as intended, it has also hurt the company’s bottom line.

Ultimately, the firm’s transport-related cash flow problems are temporary. As its fleet goes all-electric and becomes increasingly automated, the associated costs will go down. In the interim, however, the corporation needs its other divisions to make up for the financial shortfall.

In the past, Amazon Web Services has served as one of the company’s most profitable segments. However, in Q3 2019, the unit only saw a nine percent year-over-year increase in revenue—a four year low.

Currently, the corporation is America’s number one enterprise cloud computing provider with a market share of 32.3 percent. Nevertheless, the firm doubtlessly wants to expand its dominance. Offering more expedient web services can help it do that.

It’s also worth noting that, by partnering with ARM, Amazon can significantly cut down on its overhead costs. Last November, the e-commerce company transitioned from buying chips from the current market leader Intel to using those of its rival AMD in a money-saving maneuver. In that context, the move to utilize even lower-cost custom processors just makes sense.

Increased Competition

Right now, Amazon’s position as the U.S.’s web services king is very strong. Its nearest competitor, Microsoft, only has a market share of 16.5 percent. Yet, the firm is facing increasing challenges within the $80 billion market.

As an example, Microsoft recently outfoxed the e-retailer to secure a $10 billion Defense Department cloud services contract. Moreover, in August, the Windows maker acquired data center cybersecurity company Blue Talon with an eye towards improving its Azure cloud server business.

Meanwhile, Chinese conglomerate Alibaba recently unveiled its first artificial intelligence chip, the Hanguang 800, in September. Notably, the firm claims that its processor gives its Taobao e-commerce platform the ability to index one billion merchant images in five minutes. Also, the corporation notes that it will not be selling the component, but will offer web services using the powerful chipset.

While the Sino corporation is interested in China’s $100 billion enterprise cloud market, it’s also pursuing a North American expansion.

Research and Markets estimates that the global cloud infrastructure industry will be worth $166.6 billion by 2024. Judging by Amazon’s focus on developing its web services segment, the company wants a big piece of that particular pie.

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