Microsoft Said To Be Designing Their Own Silicon
Ian King and Dina Bass for Bloomberg:
The world’s largest software maker is using Arm Ltd. designs to produce a processor that will be used in its data centers, according to people familiar with the plans. It’s also exploring using another chip that would power some of its Surface line of personal computers. The people asked not to be identified discussing private initiatives. Intel’s stock dropped 6.3% to close at $47.46 in New York, leaving it down 21% this year.
The move is a major commitment by Microsoft to supplying itself with the most important piece of the hardware it uses. Cloud-computing rivals such as Amazon.com Inc. are already well down the road with similar efforts. They’ve argued their chips are better suited to some of their needs, bringing cost and performance advantages over off-the-shelf silicon primarily provided by Intel.
Three things.
First, while the Surface — read: the consumer — element of this made the headline, the report downplays it quite a bit later on:
Microsoft’s efforts are more likely to result in a server chip than one for its Surface devices, though the latter is possible, said one of the people. The company’s chip design unit reports to Jason Zander, head of the Azure cloud business, rather than Panos Panay, who oversees Surface products. Representatives of Microsoft and Arm declined to comment on whether Microsoft is working on server and PC processors.
Second, the server element is arguably more interesting and potentially devasting to Intel because they’d be getting flanked by Apple with the M1 chip on the consumer side and Microsoft (and Amazon!) on the server side. This matters because:
Intel’s Xeon range of server chips currently power most of the machinery at the heart of the internet and corporate networks, generating the company’s most profitable source of revenue. It still has about 90% of this market, despite recent gains by AMD. Some Xeon models cost as much as a compact car.
Third, all that said, it still would be surprising if Microsoft wasn’t working to design their own ARM-based chips for their Surface devices, because they already have such devices (not to mention Windows) that run on ARM, they just don’t run very well on those chips (which they currently make with Qualcomm). That plus the fact that Apple just dropped a performance bomb on the industry with the M1 means Microsoft likely need to bring the design in-house if they hope to compete. Which, presumably, they do.
As I closed out my reaction post to the M1 a month ago:
And if the claims hold up, it’s hard to see how the Windows-based ecosystem competes. Sure, the giant gaming rigs with discreet graphics aren’t scared. But the Windows-based laptops should be. How do you compete with this? As is always the case with Apple, it’s not just the hardware, it’s the software custom tailored to run on it. The only way to compete is to do the same thing. Does that mean Microsoft will need to start making their own chips for Surface machines? Well that seems a lot more likely than Intel getting into software…
But unless there have been skunkworks projects deep inside Redmond that are much farther along than the complete and utter lack of leaks would indicate, we’re years away from that being a reality. Maybe longer.
So yeah, the makers of PC laptops should be terrified by all of this. It’s like when Steve Jobs took the original MacBook Air out of the manilla envelope — except the inverse. The form factor there glossed over what was a fairly sub-par machine. Here, the form factor is dated because everyone copied it. But the performance is the showstopper. And it’s going to be a lot harder to copy. Microsoft should be rushing to acquire a chip maker. And Intel should be… hoping Microsoft calls.
This may very well be that skunkworks project — which, you’ll note, Microsoft is specifically not denying in their statement. But again, the initial focus, perhaps unsurprisingly, will be on server chips. But then don’t be surprised if the focus does indeed turn to Surface.
2020 has been brutal for many of us. Intel is no exception.
