Microsoft Corp. is working on internal processor designs for use in server computers running the company’s cloud services, contributing to an industry-wide effort to reduce dependency on Intel Corp.’s chip technology.
The largest software maker in the world uses Arm Ltd. is designing to produce a processor to be used in its data centers, according to people familiar with the plans. It is also exploring the use of a different chip that would power part of its Surface line of personal computers. The people asked not to be identified and discussed private initiatives. Intel’s stock fell 6.3% and closed at $ 47.46 in New York, keeping it 21% lower this year.
The move is a major commitment from Microsoft to provide itself with the most important piece of hardware it uses. Rivals in the cloud like Amazon.com Inc. is well underway with similar efforts. They have argued that their chips are better suited to some of their needs, providing cost and performance benefits over standard silicon mainly supplied by Intel.
Microsoft’s efforts are more likely to result in a server chip than one for its Surface devices, although the latter is possible, one said. The company’s chip design unit reports to Jason Zander, head of the Azure cloud business, rather than Panos Panay, who oversees Surface products. Microsoft and Arm representatives declined to comment on whether Microsoft is working on server and PC processors.
“Because silicon is a fundamental building block of technology, we will continue to invest in our own capabilities in areas such as design, manufacturing and tools, while also encouraging and strengthening partnerships with a wide variety of chip vendors,” said Microsoft spokesman Frank Shaw. .
Microsoft has stepped up hiring processor engineers in recent years, recruiting in the backyard of chip makers such as Intel, Advanced Micro Devices Inc., Nvidia Corp. and among those who have gone adrift when Qualcomm Inc. has given up on its server chips efforts.
AMD is the second largest maker of chips that run PCs, and it is making a comeback in the server market after being largely shut out by Intel for most of the past decade. The AMD stock fell 1% on Friday. Xilinx Inc., another chipmaker to acquire AMD, is down 1.8%.
Intel’s Xeon family of server chips currently power most of the machines at the heart of the Internet and corporate networks, providing the company’s most profitable source of income. It still holds about 90% of this market, despite recent gains from AMD. Some Xeon models cost the same as a compact car.
Customers such as Microsoft are increasingly opting for alternative solutions to gain insight into the mountain of data generated by cloud computing and smartphones. The application of artificial intelligence to automate that process has led to a stream of new chip designs. The main concern for owners of the gigantic data centers behind services like Office 365 has become the cost of providing electricity for their growing hardware footprint. Arm-based chips are often more energy efficient.
If Microsoft continues with its own chip for PCs, it will follow Apple Inc., which is removing its entire Mac line from Intel processors. While neither Apple nor Microsoft devices own much of the PC market, their offerings are positioned as premium products with slicker designs and more advanced capabilities. In announcing the first new Macs based on the M1 chip, Apple praised the performance improvement over standard PCs.
Microsoft is currently using Qualcomm’s Arm-based chips in some of its Surface PCs. It has ported Windows to run on these types of chips, which are typically used in smartphones. Apple also uses Arm technology in its processors. Other Surface models use Intel chips.
(Updates with Microsoft comment in fifth paragraph.)