First it was AmazonBusiness, which offers online buying and selling of electronics components. Now, as a number of news outlets have reported, Amazon.com is making semiconductors.
According to The Verge:
An Israeli company acquired by Amazon last year has announced a new line of semiconductors, marking Amazon's first foray into the chipmaking market. The company, Annapurna Labs, announced its Alpine line of ARM-based processors on Wednesday, nearly a year after Amazon acquired it for a reported $350 million. The company says its chips are designed for Wi-Fi routers, media streaming devices, connected home products, and data storage gear, and that they've already been used in commercial products from Asus, Netgear, and Synology.
Amazon has certainly been the 800-pound gorilla in the world of e-commerce, an area that is becoming increasingly important in electronics distribution. Many electronics distributors offer some kind of online ordering option and others, such as Digi-Key Electronics and Verical.com, have made e-commerce the cornerstone of their businesses. Digi-Key stopped publishing paper catalogs (in favor of digital catalogs) years ago and Verical.com started from the ground up as a digital marketplace.
Electronics distributors do more than sell parts online, which is why the channel hasn’t been unduly worried about competition from Amazon. Authorized distributors can guarantee they are selling components that come directly from the original component manufacturer (OCM); pass on supplier warrantees; provide supply chain and a myriad of other services their suppliers and customers don’t want to manage. It would be tough for any e-tail site—even one as ubiquitous as Amazon—to displace electronics distributors.
That doesn’t mean distributors welcome competition. In spite of massive market consolidation during the 1990s, the electronics distribution channel is still populated by hundreds of companies vying to sell the same components to an OEM and EMS base. Among the casualties of this competition is pricing, which neither suppliers nor distributors want to see eroding any further.
The semiconductor market has been suffering its own consolidation and price erosion as Bolaji Ojo discusses in Are There Too Many Chipmakers? Amazon’s move doesn’t really mean a new entrant into the chip market – lots of companies offer ARM-based products – but it does raise some questions about Amazon’s intentions regarding sales channels and hardware. Amazon’s first hardware product, the Kindle, was manufactured at a loss so that Kindle users could shop the Amazon.com marketplace from one more device. I denied myself a Kindle until the nearest bookstore closed its doors and now I’ve been completely sucked in by Kindle and Amazon.com.
But judging by Amazon’s customer list – Netgear, Asus and Synology – it is competing against other chip makers in OEM designs. According to Bloomberg:
The entry of an Amazon subsidiary into the market for components and systems is a challenge to Intel Corp.’s dominance of data-center infrastructure. The use of ARM’s technology in Intel’s most lucrative market has so far been negligible as the world’s largest chipmaker has kept a grip on its 99 percent market share for server chips. In November, Intel’s data-center business chief Diane Bryant said the threat of ARM-based servers was a tool that customers use in price negotiations. ARM’s current market share is less than half of 1/10 of a percent, she said.
Annapurna Labs’s Alpine semiconductors aren’t targeted at the sort of high-end servers that support Intel’s business, and instead are designed for devices that nibble at the edge of this market, such as low-power computers for storage and networking. Annapurna will also sell a hardware development kit, which lets its customers modify and extend its chips for their own purposes.
Amazon’s chips are not yet available on its own site for purchase, according to Bloomberg. It’s unclear if Amazon plans to use the Alpine in its own brand of networking products.
Electronics component suppliers long have managed their sales channels in a way that gets the supplier maximum attention from the distributor. In some cases electronics component suppliers do not authorize more than one distributor in any single geography. E-commerce has made that practice difficult if not impossible. Component suppliers also try to carry a mix of catalog distributors (low volume, high mix) and broadline distributors (high volume low mix) to appeal to a broad base of customers. It will be interesting to see if Annapurna seeks to expand its sales channels into electronics distribution or if being part of the Amazon.com family is exposure enough.