AMD explains how it aims to generate revenue from console business

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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.

Tell us what you think in the comments section below.

  • Jewy McJew

    It was worth it for AMD if only because cross-platform software will be naturally optimized for their hardware.

    That should lead to real-world competitive advantage in PC sales.

    • Matt

      It doesn’t necessarily work that way… It’s easy to think devs could just port their code over to PC and it would naturally work best on AMD hardware but it’s not that simple. I don’t know the full logistics of it so I’m not here to preach them but I know there’s more to it than AMD optimization being universal throughout their entire lineup… What it does mean though is that it will be less of a headache for devs coding multiple versions of the same game next gen.

      • Jewy McJew

        True, but perhaps the consoles will compel programmers to work with the HSA framework, which is a huge AMD initiative.

    • Dakan45

      Meh, The good thing is that they use pc optimization, but just because they have an amd stickier on them, that doesnt mean they will work better. Maybe due to the fact games will be designed for 8 core cpus will give em an edge but intel cpus while having less cores..they got actual cores not threaded and they got a whole lot more power to compensate.

      nvidia usually offers the best drivers on the release of a new game while amd has better backwards compability with old games.

      If amd steps up their partnership program and work closely with developers, that will get them closer, but amd’s APU hardware is diffirent from pc hardware and also they got diffirent apis, ps4 is opengl and xbox is direct 3d.

  • Kamille

    not just Nvidia but Intel too since developers will be forced to optimize for AMD’s x86 CPU that could translate to better performance on AMD chips on the PC when it comes to games. The days of Intel’s and Nvidia’s reign over PC gaming with absolute superior performance might not come to an end but it’ll be more balanced now. Like for example this:

    PlanetSide 2 dev: “The big challenge with the PS4 is its AMD chip, and it really, heavily relies on multi-threading. We have the exact same kind of Achilles heel on the PC too. People who have AMD chips have a disadvantage, because a single core on an AMD chip doesn’t really have as much horsepower and they really require you to kind of spread the load out across multiple cores to be able to take full advantage of the AMD processors.”

  • Dakan45

    That is pretty much common knowledge, they dont say anything new, honestly i think they took the job becasue nvidia refused and amd’s finacials dont do so well, dont forget they used to be ATI before AMD bought them.