Intel beat out Advanced Micro Devices Inc in a competitive bid to provide the design for the upcoming PlayStation 6 chip and made Taiwan Semiconductor Manufacturing Co. the contract manufacturer, a move that will bring in billions of dollars in revenue and produce thousands of silicon wafers a month, two sources said.
Intel and AMD were the final two contenders in the bidding process for the contract.
Winning the business to design Sony’s PlayStation 6 chip would be a win for Intel’s design division, but also for the company’s contract manufacturing, or foundry, business, which is at the heart of Chief Executive Officer Pat Gelsinger’s turnaround plan.
Gelsinger announced Intel’s plans to form a foundry division in 2021 and officially launched the division at an event in San Jose, California, in February. The PlayStation chip deal originated in Intel’s design division, but after the separation this year, the deal will benefit the foundry business’ financial performance.
Details of the negotiations and how Intel missed out on Sony’s yet-to-be-announced next-generation console contract were first reported here.
Typically, Sony sells more than 100 million consoles in five years. For chip designers, the console business is less profitable than the 50%-plus gross margins of products such as artificial intelligence chips, but it is still a stable business that can profit from technology that the company has already developed. Sony’s business may also help boost Intel’s foundry business, which is currently struggling to find new big customers.
A dispute between Intel and Sony over how much profit it would make on each chip prevented Intel from reaching a price agreement, according to two sources. Instead, rival AMD won the contract through a competitive bidding process that eliminated companies such as Broadcom, leaving only Intel and AMD.
Discussions between Sony and Intel lasted for months in 2022 and included meetings between the CEOs of both companies and dozens of engineers and executives.
In response to Reuters’ report about PlayStation 6 negotiations and Intel’s failure to win that business, an Intel spokesperson said: “We strongly dispute this assertion but do not comment on negotiations with any current or potential customer. We have a very healthy customer pipeline for both our product and foundry businesses and we are focused on innovating to meet their needs.”
Sony and Broadcom did not respond to requests for comment. AMD declined to comment.
Backward Compatibility
Sony’s current generation of PlayStation consoles uses custom chips designed under contract by AMD.
Sony released the PlayStation 5 Pro last week but has yet to announce the next generation. Years after its release in 2020, Sony said it would sell 20.8 million first-generation PlayStation 5 consoles in fiscal 2023.
Similar to how big tech companies like Google and Amazon rely on outside suppliers to help design and build custom AI chips, Sony is relying on experienced design contractors to make its system processors.
Game console chip designs typically ensure compatibility with earlier versions of the system to allow users to run old games on new hardware. Switching from AMD, which makes the PlayStation 5 chip, to Intel could pose risks to backward compatibility, a topic discussed by Intel and Sony engineers and executives, the sources said.
Ensuring backward compatibility with older versions of the PlayStation is costly and requires engineering resources. Allowing PlayStation owners to play games they purchased for older systems is a feature Sony often includes in next-generation systems.
Intel, which missed out on the first wave of AI hype led by Nvidia and AMD, reported disastrous second-quarter results in August. Intel announced plans to cut 15% of its workforce to save $10 billion (Rs 83,843 crore) and laid out a plan to reduce capital expenditure on factory expansion, a cornerstone of its foundry strategy.
Finding big customers
Gelsinger and other Intel executives presented the plan to the board at a meeting last week, according to multiple sources, as the company faces more challenges following the abrupt departure of high-profile board member Lip-Bu Tan over disagreements over Intel’s future. Reuters reported the planned board meeting earlier this month, citing a source with knowledge of the board’s discussions.
According to Reuters, the potential plans include how to cut back on businesses that Intel can no longer operate. Executives will also discuss the future of Intel’s programmable chip division Altera, including a possible sale, and expanding manufacturing operations in Germany.
Under Gelsinger, Intel separated its design and manufacturing businesses and has reported separate financial results since the first quarter of this year. In April, the company disclosed an operating loss of $7 billion in its manufacturing business.
Intel has been struggling to find a high-profile customer with whom it could talk publicly about its first manufacturing process, known as 18A, which is open to other companies. If Intel wins the PlayStation 6 chip, it could occupy its foundry division for more than five years, two sources said.
Sony’s game console business could spend about $30 billion (Rs 251,529 crore) on Intel during the contract period, according to Intel’s internal forecasts, two sources said. PlayStation 2 has sold about 150 million units since its launch in 2000.
Two sources said the long-term contract with Sony will help bring a new large customer to Intel’s contract manufacturing business, as Intel is still struggling to attract customers to its advanced 18A process.
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