Google (GOOG) On Road To Designing Proprietary Chips

Google On Road To Designing Proprietary ChipsAccording to a report that emerged late last week, Google Inc (NASDAQ:GOOG) is planning on designing its own processors. The report said that the company is planning to build its own chips in partnership with veteran processor manufacturer ARM. The move was not expected, but it makes sense given the state of Google business as 2013 draws to a close.

Google Inc (NASDAQ:GOOG) could use its own chips for data centers, or it could design proprietary chips for smart phones and tablets. The company has reasons to head in either direction, and any move could cause massive shifts in the way the technology world works.

Google chips for mobile

Google Inc (NASDAQ:GOOG) doesn’t really need to build its own chips for mobile devices. The company sells relatively few mobile devices, and it doesn’t’ make a profit off of those it does sell. Google may have ulterior motives in getting into the processor industry, however.

Aside from advertising, most Google Inc (NASDAQ:GOOG) projects are attempts to change a market rather than an attempt to dominate it. The company has already done fairly hefty work in the tablet market and it’s working on lowering costs across the smart phone market. Its movements in the processor market may be an indirect move to change the way processors work.

The Mountain View company is probably not going to try to change the pricing of processors. The CPU is not one of the most expensive parts of a modern smart phone. If Google Inc (NASDAQ:GOOG) was trying to lower component costs there would be better places to start.

If Google is designing its own servers for mobile devices, the company is undoubtedly going to try to force the market in one direction or another. What that direction is exactly is difficult to guess right now.

Google chips for servers

Servers are the most likely home for any in-house Google Inc (NASDAQ:GOOG) chip. Along with other technology giants, Google operates some of the largest data centers in the world. It fills these data centers with servers running off of Intel Corporation (NASDAQ:INTC) processors. Google could save a large amount of money by going its own way. More importantly, custom processors may deliver the kind of performance that Google wants.

Google Inc (NASDAQ:GOOG) may want to reduce the power consumption of its data centers, or it may want access to certain features that Intel is unable to offer. Like the company’s speculative mobile chips, server chips will likely form part of a more meaningful strategy than just customized data centers.

Google may want to lower the costs of servers across the board, and it may want to lower the electricity take of data centers. Both of these changes would speed up the spread of online services and ensure that more people spend more time on the internet. That means more advertising revenue for the company that runs it all.

Confirmation about a Google ARM deal has not emerged, but it’s clear that Google has ambitions in the processor market. If the company acts on those desires, it may mean a monumental shift in the way the processor market works on the server side and or the mobile side.

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About the author

Vikas is a professional financial journalist and value investor with more than four years of investing experience. He contributes breaking news and Op-Ed columns about business, finance, investment, forex, hedge funds, equities, bonds, depository receipts, economics and politics on Morning Ledger. Vikas spends most of his time reading investment books, writing about finance and looking for stocks that have significant growth potential.