Amazon May Get Data Boost With Israeli Chip Developer Purchase

Amazon has agreed to buy Annapurna Labs, a secretive Israeli chip developer — but what’s not certain yet is what’s in the deal for Amazon.

There’s a few theories why Amazon would be interested in buying the chip design company. Neither company has disclosed terms, but the most likely case being reported would be to develop Amazon Web Services, the company’s cloud computing unit, Reuters reported. This move may also position Amazon to “open a research and development center in Israel.” Networking chips are designed to make data centers run smoother, and that could benefit Amazon as it expands its Web services presence.

“AWS cloud computing business run more efficiently and less expensively. It’s also possible that the chip designs could benefit Amazon’s data centers focused on its internal businesses,” Jason Del Rey wrote for re/code. “Startups and big companies such as Netflix use AWS’s services to store data and run Internet services such as video streaming cheaper. Amazon does not break out AWS financial metrics but analysts have estimated that it could be about a $5 billion-a-year revenue business with gross margins approaching 90 percent.”

Annapurna hasn’t said much about the technology it’s developing behind its chip designs, but according to The Wall Street Journal: “The people familiar with the matter said Annapurna develops mid-range networking chips for data centers that transmit more data and use less power.” Israel’s Calcalist publication reports the company is developing “microprocessors that allow fast data traffic for low-power computing servers and storage servers.”  This could be particularly relevant to Amazon as it looks for a “a potential boost to its rapidly growing business that rents computing power to other companies.”

The deal was confirmed both via an Amazon spokesperson by WSJ and The New York Times. The companies are said to be in “advanced talks,” but no terms have been disclosed. But sources told WSJ that Amazon has said the purchase price could be in the ballpark of $350-375 million. The Times suggested this deal shows Amazon’s desire to break into the rapidly-growing Israeli tech scene. According to Seeking Alpha, there’s speculation that Amazon is preparing its own ARM server chips, which is where Annapurna’s technology would come into play.

“Though Amazon has downplayed the efforts of third-party ARM server CPU vendors, it has also hired several key engineers from defunct ARM CPU vendor Calxeda,” Eric Jhonsa wrote for Seeking Alpha.

Earlier this week it was announced that Alibaba — one of Amazon’s growing e-commerce competitors — is investing in Israeli QR code developer Visualead. Looks like Israel may be the next market major commerce competitors look to target.

Founded in 2011 by Avigdor Willenz, Annapurna Labs bought chip-design company Galileo Technologies for $2.7 billion the year prior; Willenz was also the founder of Galileo.