AMD Expects Game Consoles to Account for Nearly 20% of Revenue This Year

AMD May Change Business Model with Next-Generation Game Consoles

by Anton Shilov
01/23/2013 | 10:57 PM

Advanced Micro Devices is on track to significantly boost percentage of revenue its gets from the embedded business. According to the company, in Q4 2013 it expects embedded products to account for 20% of revenue thanks to major design wins. While the company does not disclose details, it looks like those designs wins are next-generation game consoles from Microsoft Corp. and Sony Corp. Moreover, it appears that AMD is changing its game console business model.

 

“We have strong design wins for our embedded and semi-custom APUs. Initials products based on these APUs are expected to launch later this year, driving our embedded semi-custom business to more than 20% of our revenue mix by the fourth quarter,” said Rory Read, chief executive officer and president of AMD.

Last year embedded products – including embedded accelerated processing units (APUs), embedded central processing units (CPUs), embedded chipsets and embedded graphics processing units (GPUs) – accounted for roughly 5% of AMD’s revenue of around $5.42 billion, which was $271 million.

Embedded Business Targets Game Consoles

According to AMD, game consoles are an area of interest for the company; particularly, an area of interest for the embedded products group. Previously – in case of graphics technologies integrated into Microsoft Xbox 360, Nintendo Wii and Nintendo Wii U – game consoles were an area of interest of graphics products group. ATI Technologies and then AMD has never sold GPUs for game consoles, but received royalties for every single console and every game for the consoles that utilize its graphics tech (such royalty payments may account for $10 - $20 - $30 million a quarter, not hundreds of millions AMD wants to get from its embedded business). The royalties are recognized as a part of graphics products group revenue. Apparently, this is going to change.

When asked specifically about game consoles during the conference call, AMD’s Lisa Su, general manager of global business unit, who also oversees embedded business of the company, said that the firm had already received first payments for Nintendo Wii U and those were recognized as a part of graphics business revenue, but for some reasons also mentioned the embedded business unit and its revenue targets.

“On the gaming revenue, I think we talked about the Nintendo Wii U that was announced in the fourth quarter and that was part of the revenue that was reported in the graphics segment. In terms of going forward, what we said is the embedded in the semi-custom business will ramp over this period in 2013 and we are on track for that 20% revenue target by the fourth quarter,” said Ms. Su.

Based on the comments made by Lisa Su and the fact that the only viable game consoles scheduled to be unveiled this year are Microsoft Xbox Next, Sony PlayStation 4 “Orbis”, it looks like AMD will not license its graphics and processing technologies to platform owners, but will sell semi-custom accelerated processing units to them.

Chips Instead of Licenses

Based on unofficial information, both next-generation consoles from Microsoft and Sony will utilize system-on-chips with up to eight Jaguar x86 cores and custom Radeon HD graphics engines. Considering that due to x86 license agreements with Intel AMD may have no rights to license x86 designs to any third company and has to build-in third-party IP into x86-based SoCs itself, there may be reasons why AMD is going to sell chips to console developers and not license technologies.

From many points of view, selling embedded custom APUs to Sony and Microsoft has a lot of advantages for AMD since it will naturally get more profit by selling chips than by getting license fees. On the other hand, the profit margin of such eAPUs will likely be very low. Moreover, AMD will have to handle all the manufacturing and logistics issues, which may not be too comfortable for a company with limited resources.

AMD did not officially confirm design wins with Microsoft and Sony or the changes in its relationship with console platform owners.