- AWS plans to reduce spending on ZT Systems as it designs more data center gear in-house.
- AWS has been designing more data center components itself to improve efficiency.
- AWS remains the largest cloud provider, with significant capital expenditures planned for 2025.
Amazon Web Services plans to cut back on one key supplier as it designs more data center components in-house.
AWS is scaling down its spending with ZT Systems, an AI infrastructure company that AMD agreed to acquire for $4.9 billion earlier this year, Business Insider has learned.
AWS spent almost $2 billion last year on ZT Systems, which designs and manufactures server and networking products, according to one internal estimate in a confidential Amazon document from late last year, obtained by BI.
The document said some of AWS’s “server and networking racks” were “transitioning” to a custom hardware approach where it designs this equipment itself. This change has the “potential to impact spend” with ZT Systems, the document explained.
Two current AWS employees familiar with the relationship also told BI recently that AWS is reducing spending on ZT Systems. One of the people said the cutback could happen in phases over a long period because ZT Systems is tightly integrated with AWS servers. They asked not to be identified due to confidential agreements.
An AWS spokesperson told BI that the company continues to have a business relationship with ZT Systems.
“Across AWS, we are relentless in our pursuit of lower costs and improved performance for customers, and our approach to our infrastructure is no different,” the spokesperson told BI in an email statement. Spokespeople for AMD and ZT Systems didn’t respond to requests for comment.
AWS has been using more homegrown data center components in recent years, where it sees the opportunity to save costs and improve efficiency. This helps AWS because it doesn’t have to buy as much from outside suppliers that mark up their offerings to make a profit. In turn, AWS is able to reduce prices for cloud customers. AWS now uses various custom data center components, including routers and chips.
AWS is the world’s largest cloud computing provider, so any change in its spending behavior is closely followed by the tech industry. AWS’s spending on individual suppliers can fluctuate over time, and any one change doesn’t mean AWS is pulling back on its data center investments. In fact, Amazon is expected to spend $75 billion in capex this year, and even more in 2025, mostly on AWS data centers.
AMD agreed to acquire ZT Systems in August for $4.9 billion. The company is best-known for designing and manufacturing server racks and other gear that help run data centers.
AWS could still send in-house designs to ZT to be manufactured. AMD previously said it plans to sell ZT Systems’s manufacturing business after the acquisition closes.
In recent months, some AWS employees have discussed concerns about working too closely with ZT Systems since AWS and AMD offer similar products in the AI chips space, one of the people said.
For years, AWS has been a close partner of AMD. The cloud giant sells cloud access to AMD CPUs but hasn’t made AMD’s new AI chips available on its cloud servers yet, partly due to low demand, according to one AWS executive who spoke with BI recently.
It’s relatively common these days for big tech companies to design custom hardware. Nvidia, for example, acquired Mellanox for $6.9 billion in 2019 to offer its own data center networking infrastructure. Other cloud giants, including Google, also design their own chips and networking gear.
AMD said in August that ZT Systems will help “deliver end-to-end data center AI infrastructure at scale.”
“AWS and AMD work together closely, as we continue to make AWS the best place to run AMD silicon,” AWS’s spokesperson told BI.
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