AMD turns from PC to lucrative console market

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AMD’s recent appearance at the Citi Global Technology Conference revealed some information about the company’s dealings with Microsoft and Sony as well as how they planned to tackle a shrinking computer market.

AMD says that most of their money in the future will come from new markets and not from the traditional computer industry.

Speaking at the conference, AMD’s Senior Vice President and Head of the Global Business Unit, Lisa Su said that the company was making more progress in markets outside of the consumer space than previously planned. Su noted that currently 20% of AMD’s revenue comes from new markets outside of the consumer PC industry.

“So again in 2012 95% plus PC business; by the end of 2013 we will have over 20% of our revenue outside of PCs. I would say the largest contribution of that is on the semi-custom and game consoles. As we go forward, for the next three years we put a target of 40% to 50% of our business outside the traditional PC space,” said Su.

There have been many questions about how Microsoft and Sony are acquiring the APUs for their respective next-gen consoles. Su said that Nintendo makes their own APUs and licenses out the GPU inside the Wii and Wii U, while Sony and Microsoft have to go through AMD for production of their APUs.

“So just for a bit of clarity; in the last generation of consoles Microsoft and Nintendo were using our technology and we received licensing royalties from that. In this generation of consoles Nintendo is still licensing our technology, Microsoft has switched from a licensing model to a silicon model and Sony is new revenue for us,” she said.

Lisa Su with the first Kaveri chips

Lisa Su with the first Kaveri chips at E3 2013.

The reason for this is because Intel’s x86 license is exclusive and x86 processors may only be made by companies that hold the license and pay for every x86 processor they produce. This means that AMD and VIA are the only companies allowed, or able to afford, to make x86 processors, along with Intel’s approval of the foundry partners they will be using.

In response to another question about the console hardware, Su confirmed that the 28 nanometer production process was being used and APUs were being supplied by TSMC and Global Foundries. This makes it very likely that AMD’s upcoming APU for the desktop market, Kaveri, will be made on the 28nm process as well.

Su finally commented on the financial viability of the licensing model and the custom chip designs that AMD is offering to customers. “The gross margins are below corporate average and the operating margins are fairly good. In our last quarterly earnings call we guided that the operating margins of gaming would start in the low double-digits. We see opportunities for that to improve over time,” said Su.

This means that AMD only sees less than $100 for every APU made for external clients before factoring in other costs after the chip is fabricated (by definition, Gross margin is the difference between revenue and cost before accounting for certain other costs). Before the hardware in the Playstation 4 and Xbox One was fully detailed, Nvidia said that it opted out of the console business because there wasn’t enough money in it.

Source: Seeking Alpha

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AMD turns from PC to lucrative console market

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