The shares of Intel dropped by 6.3% on Friday when news filtered in that Microsoft was planning to design its own chips to be used in Surface PCs and servers. Intel has been in a long-term partnership over the years to produce processors for Windows PCs.
A spokesperson for Microsoft, Frank Shaw, said in a statement that the company was looking at investing in its own capabilities in areas like design, manufacturing, and tools using silicon as the foundational building block. Microsoft also explained that it was looking at expanding the partnerships it already had with its chip providers.
Apple was one of the high-profile companies that have moved away from using chips made by Intel. Last month, the company released PCs made from its own M1 processor. The chip from Microsoft would be made using technology from Arm. Arm, which is owned by Softbank, would soon change ownership since talks are on for its acquisition by Nvidia.
Both Apple’s iPhone and Amazon’s server chips are made after Arm’s instruction set. Reports said Microsoft would make use of the chips more in favor of its servers than for its PCs, Bloomberg reports.
When queried on the likelihood of Microsoft to adopt its own chips in a conference held early this month, a senior executive at Microsoft did not outrightly reject the idea. Judson Althoff, an executive president at Microsoft, said during the UBS Global, Technology, Media and Telecommunications Conference held on December 8 said that there was the need for the company to have advanced capabilities in having its own processor chips.
Windows PCs currently run on the chips produced by Arm. Microsoft once produced a tablet using an Arm chip made by Nvidia in 2012. However, the company phased out the devices in 2013. A new device from Microsoft, the Surface Pro X, was made using a Qualcomm Arm chip.
Intel’s revenue from its PC chips division for the quarter ending in September was about $9.85 billion. Server chips are also a major source of revenue for the world’s largest and highest valued semiconductor chip manufacturer. The server chips division reported $5.91 billion in revenues.
While other chip manufacturers outsource their chip manufacturing to companies in Asia, Intel has its own chip factories. However, the companies had suffered setbacks in manufacturing chips in recent years. At the beginning of the year, the company’s CEO, Bob Swan, said it was considering contracting companies to manufacture its chips, imitating Apple which has done so for years.