The period where data centers were primarily controlled by server CPUs from only two companies, Intel and AMD, is fading away as Arm-based chips, previously less prevalent in the server CPU sector, are now picking up speed. Alphabet's Google recently announced the development of a custom Arm-based CPU for widespread deployment in the data centers that power Google Cloud. Microsoft made a similar announcement last year, and Amazon Web Services has been offering instances using its own Graviton CPUs for some time.

The gradual but significant shift towards Arm-based chips in the data center market is evident. Previous attempts by companies like Qualcomm in 2017 with its Centriq CPUs were unsuccessful. However, with major cloud giants now embracing custom Arm CPUs, the server chip market seems to be at a turning point.

A focus on reducing costs is a driving force behind this transition. Cloud computing costs are high, partly due to the slow improvement in server CPU performance per dollar and efficiency, influenced by the dominance of Intel and AMD. Google's goal with its Axion server CPU is to deliver solid performance and exceptional energy efficiency, aiming to lower total ownership costs including energy consumption over the chip's lifetime.

Google claims that its Axion processors offer up to 50% better performance and 60% improved energy efficiency compared to x86 CPUs from Intel or AMD. This promises reduced cloud computing costs for both Google and its customers. With AWS and Microsoft already moving in this direction, Google had to adapt to remain competitive.

The shift to Arm-based server chips presents challenges for Intel and AMD. Intel, holding a significant share of the server CPU market, stands to face substantial impact as cloud giants adopt Arm-based chips. Both companies are working on products to compete with energy-efficient Arm-based server CPUs. AMD's "Bergamo" CPUs and Intel's upcoming Sierra Forest server CPUs aim to rival the performance of Arm-based chips.

In the long term, Intel's foundry business may help offset losses from the Arm-based transition. Intel's collaboration with Arm Holdings and its advanced manufacturing process could benefit the company as it scales up in the future. On the other hand, AMD may face challenges without a similar foundry business.

Google's shift to custom Arm-based CPUs poses a threat to both Intel and AMD in the short term. However, Intel's strategic initiatives in foundry business could offer opportunities for growth amidst these changes, while AMD may need to navigate the evolving landscape of server CPU technologies.