AMD has revealed its revenue strategies since they are supplying parts for all the three major consoles, namely PS4, Xbox One and the Wii U.
It was mentioned by Nvidia that the margins in the business aren’t that high and that’s why they chose not to go ahead with aggressively trying to secure contracts with the major platform holders.
However, it was dismissed by AMD and here’s what they had to say about their strategy, in an interview transcribed by Seeking Alpha.
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.
So the answer is over a period of time the royalty numbers will go down but the silicon revenue and the margin contribution will go substantially up for the game console business. It’s net positive for us. That transition will happen over a period of time, it depends on the shares of the various console guys as they sell out. But clearly from our standpoint last generation to this generation we have a lot more content, it’s a big revenue contributor for us and good from an operating margin standpoint.
Yes so there’s been just a few questions on that topic, it’s fair to say that the semi-custom business model is different from our traditional PC model. The gross margins are below corporate average. 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 overtime, particularly as we go up the volume curve and see our cost reductions both in manufacturing and productivity in general. But as a model, it’s really a very, very nice model because we designed these with our customers, our customers fund a large portion of the engineering expense and so the gross margin fall through to operating margins as a percentage is quite high.
This is a major win for the company and this surely gives them an edge over their competitor nvidia.
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