Look for Amazon's new homegrown chips in data centers, not Fire devices

Annapurna Labs, an Amazon subsidiary, said it would start selling a line of ARM-based chips for hardware that handles 4K video delivery, storage, IoT, cloud and networking. The chips will be sold to makers of products for homes and data centers.

The announcement surprised many, since selling chips is a radical shift from Amazon's bread-and-butter retail business. But the company has jumped outside its comfort zone before, dabbling in new businesses such as Web hosting with AWS (Amazon Web Services), which has become a runaway success.

Amazon is great at delivering products, and it will sell Alpine chips via Annapurna to system makers much like it sells consumer products through its retail website, said Nathan Brookwood, principal analyst at Insight 64.

The retailer is entering a chip industry convulsed by change, most of it driven by massive data centers built by companies like Facebook and Google. There is a growing need for faster storage and networking technologies in these data centers, which is where the Alpine chips will fit, Brookwood said.

Amazon may have drawn inspiration from its own business in deciding what markets to target with Alpine chips, said Dean McCarron, principal analyst at Mercury Research.

Web services, video delivery and storage are all within Amazon's expertise, so those are obvious targets, McCarron said.

If somehow Amazon used these chips to tie servers and equipment to AWS, it would mean more business for the company, analysts said. The chips could provide a path for Amazon to push AWS out to more businesses and data centers.

There are some markets where the Alpine chips won't fit. Amazon may not implement Alpine chips to overhaul its own AWS infrastructure, which is built around x86 chips. It'll be easy to change small storage, video delivery or networking subsystems to Alpine chips in Amazon's infrastructure, but an overhaul from x86 to ARM would be a massive undertaking, McCarron said.

Amazon will also need to provide the software stack, reference design and engineering support to customers, which can be difficult and expensive, said Jim McGregor, principal analyst at Tirias Research.

"You can't come out with a chip and just say, 'Here it is,'" McGregor said.

The chip industry is littered with companies that have failed. For example, Calxeda, considered a pioneer in ARM server chips, shut its doors in December 2013 after running out of cash.

Besides Intel, Amazon will face competition from Qualcomm, Advanced Micro Devices and AppliedMicro, which develop ARM-based chips for servers and networking equipment.