Amazon has confirmed it just dropped an undisclosed sum to acquire Israeli chip designer Annapurna Labs, while at the same time neglecting to say why. Meanwhile, Annapurna Labs has said nothing of the deal, which appears to be what the company is best at -- the chip startup is extremely secretive, and hasn't even announced any products publicly. Still, Amazon must have seen something it liked to scoop up Annapurna Labs for what is reportedly a hefty price.
While Amazon declined to discuss the terms of the deal, sources say the total value of the acquisition is $350-375 million. Annapurna Labs was founded only four years ago by Avigdor Willenz, founder of the chip-design company Galileo Technologies. That business was eventually bought out by Marvell in 2001 for almost $3 billion.
It's tempting to assume at first glance that this is a play for ARM-based mobile hardware. After all, it seems like almost every company that sells mobile devices at least toys with the idea of designing their own ARM chips. Apple, Samsung, and Nvidia have all build devices using in-house ARM chips. However, this would most likely not be a great deal for Amazon, which has only had success at the low end of the market. It's much smarter for Amazon to buy inexpensive parts in bulk rather than spend the time designing its own chip to power a $99 Kindle Fire.
Annapurna Labs certainly isn't keen on giving any hints as to what it is developing. The company has a website with little more than an inspirational quote from the founder, a Twitter page with no Tweets, and a LinkedIn page that specifically says it's "operating in stealth mode." Employees listed on the Linked-in page list specialties in the realm of semiconductor and application-specific integrated circuit (ASIC) design. Analysts have pointed to server networking chips(Opens in a new window) as Annapurna Labs' main focus. These chips could be used to move data more efficiently and save power in data centers. That would make a great deal of sense in this context. Amazon has plenty of servers.
In addition to the server infrastructure Amazon maintains for its own sites and services, one of the company's main businesses is Amazon Web Services (AWS). Amazon doesn't disclose how much money it pulls in from renting computing power to third parties, but it's believed to be in the billions of dollars annually. There are approximately 1.4 million servers in the Amazon cloud split across 28 geographical regions. That's a lot of hardware that costs money to run, so even small savings on each server could boost Amazon's profit on AWS dramatically.
It's well established at this point that the Fire Phone was an unmitigated disaster for Amazon, which took a $170 million write-down on the Android smartphone after it failed to sell in any substantial numbers. Saving a few cents here and there on server infrastructure isn't as sexy as getting into smartphones, but the Fire Phone mess might have been what compelled Amazon to focus on one of its core competencies and acquire Annapurna Labs.
Now read: Living with Amazon’s Echo: A cylinder of fun and frustration
