Intel Corp. (INTC)’s dominance in semiconductors is already threatened by the market’s shift to mobile devices. Google Inc. is poised to make matters worse.

Google is considering designing its own server processors using technology from ARM Holdings Plc (ARM), said a person with knowledge of the matter. That potentially signifies at least a partial move away from Intel, which controls more than 95 percent of the market for chips in servers that use personal-computer processors.

The endeavor would be a challenging and costly one for Google, a software-driven company that makes money from selling Internet ads and other online services. Yet, just showing willingness to shift away from Intel might help pricing for Google (GOOG) and prompt other Internet companies, like Facebook Inc. and Amazon.com Inc., to do the same, said Patrick Wang, a New York-based analyst at Evercore Partners Inc.

“Google could be doing this for price negotiations,” Wang said. “They don’t have to do it -- they just have to talk about it.”

By using its own designs, Google could better manage the interactions between hardware and software, said the person familiar with the matter, who asked not to be identified because the discussions are private. Google, among the largest buyers of server processors, has made no decision and plans could change, said the person.

“We are actively engaged in designing the world’s best infrastructure,” said Liz Markman, a spokeswoman for Google, in an e-mail. “This includes both hardware design (at all levels) and software design.” Markman declined to say whether the company may develop its own chips.
Shares Drop

Intel shares declined as much as 3.1 percent in extended trading yesterday, after closing at $24.47 in New York.

Mark Miller, a spokesman for Intel, and Phil Hughes, a U.S.-based spokesman for ARM, declined to comment.

Last month, Santa Clara, California-based Intel forecast sales that will be little changed next year amid the PC market slump. Chief Executive Officer Brian Krzanich, who was promoted to the top job in May, is counting on increasing demand for its server chips to help make up for the loss.

Google has been designing its own data centers around the world with servers to power search, video, online communications and business applications. The Mountain View, California-based company has six facilities in the U.S., one in South America, two in Asia and three in Europe.
Big Spender

Google is Intel’s fifth largest customer, according to Bloomberg supply chain analysis. The search provider spends at least $500 million on Intel server chips each year, said Christopher Rolland, an analyst at FBR Capital Markets. Designing and building server chips from scratch would take up to three years, he estimates.

ARM, based in Cambridge, England, has minimal market share in servers, though it’s seeking to pick up business as companies including Google and Facebook look for lower-power machines. Advanced Micro Devices Inc. has announced plans to use ARM-based designs for the server-chip market.

ARM chips dominate in mobile phones and tablets, where companies such as Qualcomm Inc. (QCOM) and Samsung Electronics Co. (005930) have fended off Intel’s attempts to expand. Apple Inc. uses ARM technology and customizes it for iPhones and iPads. The processors are manufactured by Samsung.

Intel has less than 1 percent market share in smartphone processors, according to Strategy Analytics.

Meanwhile, Google has been getting more involved in the chip industry. In August, the company joined a group started by International Business Machines Corp. that licenses technology used in data centers, including chips for servers. Other members of the alliance include chipmaker Nvidia Corp. (NVDA) and Mellanox Technologies Ltd. (MLNX), the maker of equipment that speeds data transfers.

Job openings at Google include one for a “digital design engineer” with qualifications in ASICs, or application-specific integrated circuits, a commonly-used chip.