In the gaming console world, it used to be cool to brag about your custom silicon. In years past, Sony thumped its chest while announcing the Cell chip that would power its PlayStation. Costing well north of $1 billion, the Cell was billed as an engineering marvel that required the combined smarts of Sony, Toshiba, and IBM to build. Similarly, Microsoft teamed up with IBM to design its own super-powered gaming chip for the Xbox. The idea was that investing 10-figure sums in these chips would imbue the consoles with unique properties and make them attractive to game makers looking to push the limits of computing.
But here we are with the PlayStation 4 and the next Xbox due for imminent arrival, and there is no real custom silicon to be found. Both Sony (SNE) and Microsoft (MSFT), according to numerous industry reports and my sources, will use high-powered, but nevertheless off-the-shelf chips designed by AMD (AMD) in their upcoming consoles. This is a big win for AMD, which already counts Nintendo and its Wii as a customer, since it will have locked up the gaming market. It’s also a dramatic shift in what a gaming console “means” in 2013 vs. what it used to mean.
Both Sony and Microsoft made custom chips because they were trying to maximize the marriage of computation and graphics functions. As it turns out, AMD does that quite well today with its so-called APUs, or accelerated processing units. These chips unite the horsepower of traditional PC chips with the added visual oomph of graphics chips on a single piece of silicon. They’re largely the result of AMD’s acquisition of graphics chip specialist ATI way back in 2006, and have proved more attractive to the console makers than anything PC chip maker Intel (INTC) and graphics chip maker Nvidia (NVDA) had to offer.
Going with a good-enough AMD product offers the console makers an obvious advantage. “They’re doing this to keep manufacturing costs low,” says Michael Pachter, an analyst at Wedbush Securities. “They’re focused on selling a lot of consoles and need to make them affordable.” So, this time around, Sony will not need to build its own chip plants, and Microsoft won’t need to pay IBM (IBM) for engineering smarts. The companies will just pay AMD royalties as they sell consoles.
The downside here is that the consoles do not seem as special as they did in years past. From the get-go, it looks as if the new gaming consoles will trail high-end gaming PCs in terms of raw horsepower. And since PCs are always being upgraded with the latest and greatest chips, this performance disparity will worsen quickly. The saving grace for Sony and Microsoft is that their machines need only perform one task well—play games—which allows them to optimize software for the consoles in a fashion that can’t be accomplished on a general-purpose PC.
As David Kanter, a chip industry consultant, points out, the console wars are now less about speed than the total entertainment package Sony and Microsoft are selling for the living room. “These days a lot of the story is about entertainment interfaces and online services,” says Kanter. “Microsoft wants to differentiate itself with things like Kinect.”
(With consoles now being used to play movies, TV shows, and music, they need to run quietly. Going with AMD’s chips helps here as well. The chips should be able to handle video streaming and the like without needing to turn on the fan inside the console for cooling.)
As Sony and Microsoft prepare to join Nintendo with their AMD-based hardware, there’s one question that must haunt all three console makers: Will AMD survive? The chip-design house has found itself in the midst of some serious financial struggles and has been laying off people and selling real estate in a bid to keep operating. “There are various gaping wounds at AMD that will remain open until the consoles come through,” says Kanter. “But come the fourth quarter of this year, they should see some revenue from the console royalties that is pure profit. I think AMD will look healthier then, but I would not go so far as to say healthy.”
Isn’t it something for the entire console gaming industry to hinge on that kind of confidence?