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Amazon's ARM Adoption Lends Competitive Edge Over GOOGL, MSFT

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Amazon’s (AMZN - Free Report) endeavors to enhance computing instance offerings reflect its customer oriented focus.

The company’s cloud computing arm Amazon Web Services (AWS) recently introduced a computing instance for Amazon Elastic Compute Cloud (Amazon EC2) which is powered by Graviton processor from Annapurna, AWS' chip-development group.

Notably, these processors use the energy-efficient Arm processing architecture that is based on Advanced RISC Machine technology.

Moreover, the usage of Arm-based processor is likely to boost Amazon’s competitive position in the cloud market against the likes of Microsoft (MSFT - Free Report) Azure and Alphabet’s (GOOGL - Free Report) Google Cloud.

ARM Architecture Aids AWS Potential

Increasing deployment of workloads by several companies on cloud based infrastructure globally for easy access and storage of files and documents with advanced security has made cloud services an absolute necessity.

This has also given rise to the demand for cheaper but efficient cloud solutions among the cloud customers worldwide in order to lower costs. The cloud giants — AWS, Azure, Google Cloud, IBM (IBM - Free Report) , among others, are also putting their best foot forward in a bid to cater to this need of cloud users.

Cost effectiveness hugely depends on the energy consumption by the cloud servers. Notably, lesser the energy consumption, lower will be the cost.

Arm processors that are widely used in smartphones and tablets are commonly known for their low energy consumption. Consequently, utilization of these processors will make the cloud systems more efficient.

Notably, the Arm based AWS Graviton processors do not require x86 instruction set which is expensive for the scale-out workloads such as microservices and web servers. Moreover, these processors run on 64-bit operating systems which is cheaper.

This factor has only made AWS a more viable option in lowering costs. In fact, the company is of the opinion that the customers will be able to cut down their costs by 45% for these kind of workloads by using the latest computing instance, which is a significant saving.

AWS gains a competitive edge against its two big competitors — Azure and Google Cloud — driven by the above-mentioned cost effectiveness that it is able to provide its customers with the latest EC2 A1 computing instance.

Where Does Microsoft & Google Lag?

Microsoft and Google are yet to incorporate Arm based chips in their cloud platforms.

Reportedly, Microsoft introduced ARM servers for its Windows Server operating system. Further, the company intends to use Arm chips in its data center server operations. Meanwhile, Google has been aggressively pursuing the use of chips based on Arm technology.

Moreover, both the companies have interests in working with Qualcomm for Arm-powered processors for their cloud platforms. However, Qualcomm’s recent plan of exiting from server chips does not bode well for these two behemoths.

Further, IBM and other cloud providers have not made any advances in recent times to leverage the power of Arm chips into their cloud platform.

All these are likely to help AWS in gaining first-mover advantage thereby driving its dominant position in cloud.

AWS Still Dominates Cloud Market

In third-quarter 2018, AWS retained its majority of the cloud market. The market share for Azure was above 10% but less than 20%, meanwhile IBM and Google Cloud recorded less than 10%. However, AWS’ share was above 30% which leaves rest of the pack trailing.

The improving momentum of AWS in the rapidly growing cloud market which as per a report from Gartner is expected to reach $206.2 billion in 2019, reflecting year-over-year growth of 17.3%, remains a key catalyst for Amazon. Notably, AWS is the company’s high margin generating unit.

Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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