SAN FRANCISCO (Askume) – Intel Corp (INTC.O) has lost a design and manufacturing contract for 2022 Sony PlayStation 6 chips, dealing a major blow to its efforts to build a nascent contract manufacturing business, three people said . sources.
Intel selected Advanced Micro Devices (AMD.O) during a bidding process to provide designs for its upcoming PlayStation 6 chips and chose TSMC as a contract manufacturer, two sources said .(2330.TW) will generate billions of dollars in revenue and produce thousands of silicon wafers per month.
Intel and AMD are the final two contenders in the bidding process for the contract.
Sony’s (6758.T) PlayStation 6 chip design win is a win for Intel’s design unit and the company’s contract manufacturing business, or foundry business, said Intel CEO Pat Gelsinger.
Gelsinger announced Intel’s plan to set up a foundry unit in 2021, which was officially launched in February this year at an event in San Jose, California. The PlayStation chip deal began at Intel’s design unit, but it could be a boon to the financial performance of the spun-off foundry business this year.
Here are the first details of the discussions and how Intel missed out on the contract for Sony’s yet-to-be-announced next-generation gaming console.
Typically, Sony consoles sell more than 100 million units over five years. For chip designers, the console business is less profitable than the more than 50% gross margins of products such as artificial intelligence chips, but it still represents a stable business that can benefit from technology developed by the company. Sony’s business could also help boost Intel’s contract manufacturing business, which is currently working to find new large customers.
Intel has been unable to negotiate prices with Sony because of a dispute over how much profit it makes on each chip sold to the Japanese electronics giant, according to two sources. Instead, rival AMD won the contract through a bidding process, squeezing out others such as Broadcom (AVGO.O) until only Intel and AMD were left.
Sony and Intel have been discussing their 2022 goals for months, including meetings between the companies’ chief executives and dozens of engineers and senior executives.
In response to a Askume report on PlayStation 6 negotiations and Intel’s failure to win business, an Intel spokesperson said: “We strongly disagree with that characterization, but do not comment on any current or potential customer negotiations. We have a very healthy pipeline of customer pipelines. Across our products and foundry operations, we are entirely focused on innovating to meet their needs.”
Sony and Broadcom did not respond to requests for comment. AMD also declined to comment.
Posterior compatibility
The current generation of Sony’s PlayStation game consoles use custom chips whose design contracts are fulfilled by AMD.
Sony announced the PlayStation 5 Pro last week but has not yet unveiled the next generation. Years after its launch in 2020, Sony said the first-generation PlayStation 5 system had sold 20.8 million units in fiscal year 2023.
Just as big tech companies such as Google (GOOGL.O) and Amazon (AMZN.O) rely on outside suppliers to design and build custom artificial intelligence chips, Sony relies on experienced design contractors to build processors for its systems.
Game console chip designs typically try to ensure compatibility with older versions of the system so users can run older games on newer hardware. Sources say switching from AMD, which makes PlayStation 5 chips, to Intel could threaten backward compatibility, a topic of discussion between engineers and executives at Intel and Sony.
Ensuring backward compatibility with older versions of the PlayStation is expensive and requires engineering resources. Allowing PlayStation users to play games purchased for older systems is a feature Sony often offers with next-generation systems.
Intel reported disastrous second-quarter results in August after missing out on the first wave of the AI boom led by Nvidia (NVDA.O) and AMD . Intel announced plans to lay off 15% of its workforce to save $10 billion and reduce capital expenditures for factory expansion, the cornerstone of its foundry strategy.
Looking for big customers
As Gelsinger and other Intel executives presented the plan to the board last week, the sudden departure of key board member Lip-Boo Tan amid disagreements over Intel’s future added to the challenges facing the company, multiple sources said, Askume reported, citing a source familiar with board discussions.A board meeting is planned for early this month .
According to Askume, potential plans include the idea of shutting down businesses that Intel can no longer operate. Executives are also expected to discuss the future of Intel’s programmable chip unit Altera, including a possible sale and its manufacturing expansion in Germany.
During Gelsinger’s tenure, Intel separated its design and manufacturing operations and reported financial performance separately for the first quarter of this year. In April, the company disclosed a $7 billion operating loss in its manufacturing business.
Intel has been struggling to find a big customer willing to commit to the first manufacturing process, known as 18A, which opens up to other companies. If Intel wins PlayStation 6 chips, it could keep its foundry unit for more than five years, two of the sources said.
According to Intel’s internal estimates, Sony’s console business will bring Intel about $30 billion in net revenue over the term of the contract, two sources said. Since its launch in 2000, about 150 million units of the PlayStation 2 have been sold.
The long-term contract with Sony would help bring major new customers to Intel’s contract manufacturing business, two of the sources said, as Intel has struggled to attract customers for its advanced 18A process.
