Intel has lost a contract to design and manufacture Sony PlayStation 6 chips in 2022, according to three people familiar with the matter, dealing a major blow to the company’s efforts in its fledgling contract manufacturing business.
Intel beat out Advanced Micro Devices in a bidding process to provide designs for upcoming PlayStation 6 chips, while Taiwan Semiconductor Manufacturing Co.’s efforts as a contract manufacturer will generate billions of dollars in revenue, making thousands of silicon wafers a month, two sources said.
Intel and AMD were the last two contenders in the bidding process for the contract.
Winning Sony’s PlayStation 6 chip design business would be a win for Intel’s design unit, but also for the company’s contract manufacturing business, or foundry business, which is central to Intel Chief Executive Pat Gelsinger’s turnaround plan.
Gelsinger announced Intel’s plans to create a foundry unit in 2021, officially launching it at an event in San Jose, California, in February. The PlayStation chip deal originated in Intel’s design unit, but after being spun off this year, it will benefit the foundry business’s financial results.
Details of the discussions and how Intel missed out on a contract for Sony’s yet-to-be-announced next-generation gaming console were first reported here.
Typically, Sony consoles sell more than 100 million units within five years. For chip designers, the console business is less profitable than the more than 50% gross margins on products such as artificial intelligence chips, but it still represents a stable business that can profit from the technology the company has already developed. Sony’s business could also help boost Intel’s contract manufacturing business, which is currently struggling to find new big customers.
Intel has been unable to reach a price settlement with Sony due to a dispute over how much profit Intel makes from each chip sold to the Japanese electronics giant, two sources said. Instead, rival AMD won the contract through a competitive bidding process, eliminating others like Broadcom until only Intel and AMD remained.
Discussions between Sony and Intel lasted for months in 2022, including meetings between the CEOs of both companies and dozens of engineers and executives.
In response to a Reuters report on PlayStation 6 talks and Intel’s failure to win business, an Intel spokesperson said: “We strongly disagree with that characterization, but do not comment on conversations with any current or potential customers. We have a very healthy customer pipeline in 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
The current generation of Sony’s PlayStation game consoles use custom chips with a design contract from AMD.
Sony announced the PlayStation 5 Pro last week but has yet to unveil the next generation. Years after its launch in 2020, Sony said its first-generation PlayStation 5 system sold 20.8 million units in fiscal 2023.
Similar to how large tech companies like Google and Amazon rely on outside suppliers to help design and manufacture custom AI chips, Sony relies on experienced design contractors to build system processors.
Console chip designs often try to ensure compatibility with earlier versions of the system, allowing users to run older games on new hardware. Sources say switching from AMD, which makes PlayStation 5 chips, to Intel could risk backward compatibility, which is the subject of discussions between Intel and Sony engineers and executives.
Ensuring backward compatibility with earlier versions of PlayStation is costly and requires engineering resources. Allowing PlayStation owners to play games they purchased for older systems is a feature Sony often includes with next-generation systems.
After missing out on the first wave of the AI boom, led by Nvidia and AMD, Intel reported disastrous second-quarter results in August. Intel announced plans to cut 15% of its workforce to save $10 billion (approximately Rs 83,843 crore) and laid out a plan to reduce capital expenditures on factory expansions, a cornerstone of its foundry strategy.
Find big-name clients
Gelsinger and other Intel executives presented plans to the board at a meeting last week, compounding the challenges facing the company after high-profile board member Lip-Bu Tan abruptly departed amid disagreements over Intel’s future, multiple sources said. Reuters reported on the planned board meeting earlier this month, citing a source familiar with board discussions.
Potential plans include ideas on how to cut back on businesses Intel can no longer operate, Reuters reported. Executives are also expected to discuss the future of Intel’s programmable chip unit Altera, including a potential sale and its manufacturing expansion in Germany.
Intel separated its design and manufacturing operations during Gelsinger’s tenure and has reported financial results separately 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 big customer who can talk openly about the first manufacturing process, called 18A, that it will open to other companies. If Intel wins the PlayStation 6 chip, it could dominate its foundry unit for more than five years, two sources said.
Two sources said Sony’s console business could inject around $30 billion (approximately Rs 2,51,529 crore) into Intel during the contract period, based on Intel’s internal forecasts. Since its launch in 2000, PlayStation 2 has sold approximately 150 million units.
Sony’s long-term contract will help bring a raft of new customers to Intel’s contract manufacturing business, two sources said, as Intel continues to work to attract customers to its advanced 18A process.
© Thomson Reuters 2024
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
