Amazon Hardware Chief Discusses Self-Developed Chip Strategy for the First Time: Echo and Fire TV to "Change Chips" Across the Line, Annual Shipments May Reach 40 Million Pieces

TradingKey - On July 2, Eastern Time, Amazon ( AMZN )'s Devices and Services chief Panos Panay publicly outlined the company's strategic roadmap for in-house chip development in its proprietary hardware for the first time during an exclusive interview with CNBC's "The Tech Download" podcast.

In the interview, Panay stated, "We do design end-to-end silicon for the devices we ship," and revealed that Amazon's in-house chips are already used in products such as the Echo Show 8, Echo Show 11, and Fire TV.

Last October, Amazon introduced the AZ3 and AZ3 Pro chips, a series designed specifically to run AI models locally on-device rather than relying on cloud processing. The industry widely considers local AI inference to offer advantages such as lower latency and enhanced security.

Similar to Apple's path with in-house silicon, designing its own chips allows Amazon to gain greater control over the deep integration of hardware and software. Panay emphasized, "On some key devices, our focus is entirely on end-to-end silicon. Because to achieve a seamless connection between hardware and software and deliver an immersive smart experience to home users in the most secure manner, we must consider the system from the level of end-to-end hardware delivery." Panay also added that Amazon will continue to use products from third-party chipmakers like Qualcomm ( QCOM ).

Full Rollout of Proprietary Chips: AZ3 and AZ3 Pro Implemented in Echo and Fire TV Devices

The advancement of in-house chips is one of the strategic pillars for Amazon to comprehensively strengthen its on-device AI capabilities. This year, Amazon officially rolled out Alexa+ nationwide in the U.S. market. This major upgrade of its digital assistant is capable of handling more complex queries and multi-step tasks, and possesses the ability to learn user habits and understand context. From Ring smart doorbells to Echo devices and Fire TV, Amazon has established a massive hardware portfolio, with Alexa+ positioned as the central hub connecting all of these products.

Ming-Chi Kuo, an analyst at TF International Securities, released an industry survey report on the same day, noting that Amazon plans to make its first major adjustment in 20 years to its processor procurement strategy for consumer electronics. The company will gradually phase out external procurement in favor of the COT (Customer Owned Tooling) model, and has selected Alchip as the exclusive supplier for the backend design and testing of its in-house chips.

Amazon's own-brand consumer electronics—including Kindle, Fire TV, Echo, Alexa devices, Blink, and Ring—currently all use externally procured processors. Kuo estimates that after the complete transition, annual shipments of Amazon's in-house processors could reach 40 million units.

Previously, Amazon CEO Andy Jassy disclosed in his annual shareholder letter that Amazon's in-house chip division currently generates over $20 billion in annualized revenue. If operated as a standalone business and sold externally, its annualized revenue could scale up to $50 billion.

From Devices to Ecosystem: Alexa+ Becomes the Strategic Fulcrum for AI Hardware

Discussing the evolutionary interaction of AI assistants, Panay noted, "We may be moving away from a world dominated by apps and screens, where conversation and contextual understanding will become the core of AI assistants." Regarding the specific form of next-generation AI devices, Panay remains cautious: "If anyone claims to know exactly what future AI devices will look like, you should be extremely skeptical. My lab is filled with all kinds of prototypes."

Last year, Amazon officially entered the wearable space by acquiring the wearable device company Bee. Panay revealed that the company has planned "a whole roadmap of mobile devices" that can be carried around, continuously collect data, and support voice conversations. He also stated that consumers "won't have to wait too long" to see these new Amazon products debut.

In the competitive landscape of AI assistants, Alexa+ is facing fierce competition from OpenAI's ChatGPT and Google's ( GOOGL) Gemini. For Amazon, Alexa+ is an important tool for locking in user ecosystem stickiness and driving e-commerce conversions. Custom chips give Amazon cost and performance advantages in running AI workloads on the device side, which is expected to improve the profit margins of the hardware business.

This business has historically sold devices near cost to drive service adoption. In-house chips can reduce the company's reliance on commercial chip vendors and lower bill-of-materials costs across the millions of devices shipped annually.