Microsoft


MSFT

recently hired key

Apple


AAPL

engineer Mike Filippo to accelerate the process of creating homegrown chips and reduce the dependency on third-party providers. Filippo has worked with Apple for two years.

Microsoft has been working on developing in-house processors for the servers running its cloud-computing services and Surface line of personal computers since December 2020.

Microsoft relies heavily on

Intel


INTC

and

Advanced Micro Devices


AMD

for the chips supporting Microsoft’s Azure cloud computing platform and personal computers.

Microsoft to Manufacture Own Chips to Maintain Dominant Market Share

Microsoft holds a dominant position in the desktop PC market, with its operating systems being utilized in the majority of PCs worldwide. However, the company relies heavily on Intel and AMD to provide the chips for its different computing and cloud platforms.

Such dependence on third-party manufacturers amid a pandemic-induced global supply crunch of chips remains a concern for Microsoft.

Also, the PC market is slowing down and rapidly transitioning, which has persuaded Microsoft’s key suppliers to shift business gradually from PC-centric business to data-centric businesses — such as AI and autonomous driving.

This will impact Microsoft in two possible ways. Firstly, the already existent chip shortage in the PC market will impact Microsoft’s capabilities to create operating systems, which in turn will affect the company’s revenues.

Secondly, AMD and Intel’s entry into data-centric business can turn these two companies into potential competitors for Microsoft across various platforms where the company already faces intense competition.

These reasons compel Microsoft to stop relying on third-party chip providers and manufacture its chips.

Zacks Rank and Other Stocks Performance

Microsoft currently carries a Zacks Rank #2 (Buy). You can see


the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

.

Microsoft shares have surged 47.1% in the past year. The Zacks Consensus Estimate for 2022 earnings has moved upward by 1 cent in the past 60 days to $9.13 per share.

Microsoft’s has outperformed its’

Computer and Technology

peer Apple since past year.

Apple shares have appreciated 34.1%in the past year. The Zacks Consensus Estimate for 2022 earnings has moved upward by a nickel in the past 60 days to $5.82 per share.

Microsoft key chip supplier Intel’s shares declined 2.2% in the past year. The Zacks Consensus Estimate for 2022 earnings have remained unchanged at $5.28 per share in the past 60 days.

AMD shares have surged 49.7% in the past year. The Zacks Consensus Estimate for 2022 earnings has moved upward by 1 cent in the past 60 days to $2.65 per share.

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