Tech Companies Bring Chip Design In-House

Pandemic, Need to Stand-Out Drive Shift

Apple (AAPL), Amazon (AMZN), Google (GOOG), Baidu (BIDU), and Tesla (TSLA) are among the technology companies gearing up to produce their own semiconductors in-house. These companies are aiming to make custom semiconductors specific to their products.

By developing custom semiconductors internally, the technology companies can better control how their software and hardware integrate. The tech companies can also design the chips to reduce energy consumption of their devices. The pandemic is also hastening the shift to internal chip development because of rising prices and limited supply.

AI Gets Tech Companies’ Attention

Artificial intelligence is one main area where tech companies are trying to integrate improved chips. Apple was the first to do this, announcing in November of 2020 that it was moving away from Intel’s (INTC) semiconductors to make its own processor, which is now found in its iMacs and iPads. Meanwhile, Tesla recently announced plans to develop a chip to train AI networks found in data centers. Baidu is also developing its own chips to enable devices to process large amounts of data.

Outside of AI, Google is developing a CPU in-house for its Chromebook laptops, while Amazon is developing its own chips for its cloud networks. Amazon is trying to reduce its reliance on the chipmaker, Broadcom (BRCM).

Focus on Design Only For Now

The tech companies are not at the point where they are able to run a large-scale chip manufacturing businesses in-house. Instead they are focusing on design and performance. After all, setting up a foundry to produce chips can cost as much as $10 billion and these facilities can take several years to construct. These companies would also need to hire the talent to design high-end processors, as most of their employees have traditionally been focused on software, not hardware.

With supply chain problems expected to persist for some time and with technology companies looking for ways to differentiate themselves, custom chips are in vogue. It will be interesting to see how much money the tech companies pour into this effort and how it shapes the future.

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