Amazon’s chip deal highlights new exit ramp for silicon startups

Contact: John Abbott Daniel Bizo

Amazon’s somewhat surprising acquisition of stealthy chip startup Annapurna Labs for a reported $350-375m isn’t perhaps as unexpected as it appears at first sight. One of the exit strategies of such startups nowadays is to be sold off to a larger company building or operating its own systems hardware that has reached the stage where it needs its own custom silicon. That means the startup abandons the aspirations it had to be a more broadly applicable company. The acquired personnel typically become an internal chip design team for their new parent.

The most obvious example is Apple’s $278m acquisition of P.A. Semi in April 2008 . Apple obtained a 150-strong team of engineers, including the lead designer of the DEC Alpha and StrongARM processors, that boosted the development of its A series chips used in the iPhone and iPad. Apple followed up that move by buying Intrinsity in April 2010 for a reported $121m and flash memory chip designer Anobit in December 2011 for a reported $500m. Three years later, Apple snared yet another silicon startup, Passif Semiconductor, for its wireless networking chips.

Another systems maker that has its eye on chipmakers is Oracle. “You could see us buy a chip company,” said Oracle chief Larry Ellison back in 2010 . It hasn’t yet, but Ellison continues to hint. At the recent launch of Oracle’s X5 Engineered Systems range, Ellison told the audience that the company was in the process of moving more software functionality into silicon: “We are doing a lot of it,” he said. The easiest way of doing this while keeping full control would be to buy a team with expertise in hardware acceleration.

Closer, perhaps, to what Amazon is doing is the example of Google, which bought early-stage chip startup Agnilux in April 2010. Agnilux had been formed by some of the P.A. Semi team that subsequently left Apple. Even before that (in June 2007), Google had acquired PeakStream, a company that had developed a layer to make the programming of multicore processors easier. And since the Agnilux buy, Google has hired several prominent chip designers, including HP’s Partha Ranganathan, who was involved in the development of Moonshot. Google has also been quite public about its interest in IBM’s OpenPower initiative and the possibilities of using OpenPower as the basis for bespoke chip development (although it’s fair to say that things have gone quiet recently in this area).

Facebook has also been investigating the possibilities of its own chip design. The company already designs its own servers and was the driving force behind the formation of the Open Compute Project, a means of opening out the specifications of system designs so that customers can modify servers to more closely fit their own workload requirements.

Which brings us back to Amazon, which began advertising for chip designers with ARM expertise last year, and hired former Calxeda chip designer Mark Davis as the manager of a new hardware engineering and silicon optimization team based in Austin, Texas. (As an aside, defunct chip startup Calxeda, which ran out of money at the end of 2013 while trying to develop an ARM server chip, may itself reemerge – its intellectual property assets were picked up at the start of 2015 by Silver Lining Systems, a division of Taiwan-based systems provider AtGames Cloud Holdings, which is working in conjunction with ARM and the server group of Taiwan-based ODM Foxconn Technology).

Little is currently known about Annapurna Labs, an Israel-based company founded in 2011, except that some of its systems-on-a-chip parts are already being deployed in some entry-level storage systems using standard ARM processing cores, integrated networking and IO controllers. Amazon Web Services will likely employ Annapurna’s silicon-tailoring expertise to gain an edge in storage cost performance over rival cloud providers by using unique chips in its storage systems and, over time, networking gears. We expect to see more chip M&A activity from both traditional systems vendors and giant scale-out datacenter operators.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.