Semi-custom provides customized chip solutions
AMD (AMD) provides customized silicon chip solutions to original equipment manufacturers (or OEMs). The chip solutions are found in a variety of products. They help product development.
Sony’s PlayStation® 4 (SNE) and Microsoft’s Xbox One (MSFT) are gaming consoles that employ AMD’s custom designed Jaguar chips. In collaboration with AMD, the companies developed consoles that play Netflix, Blu-ray movies, and video chat. They have a large ecosystem of available apps. Sony and AMD worked together to create a System-on-Chip (or SoC) with an eight-core Jaguar central processing unit (or CPU).
ExtremeTech reported that it has a full HD 7870 graphics processing unit (or GPU) on it. This led to the creation of the 328mm^2 die. It was 34% larger than AMD’s latest Kaveri accelerated processing unit (or APU) for the desktop.
As of May 2014, Sony and Microsoft reported sales of eight million and five million unit consoles worldwide, respectively. As the above chart shows, video games are expected to post maximum revenue growth in the entertainment industry. Earlier, China didn’t have gaming consoles in its market. However, it lifted its ban on gaming consoles. In late 2014 or early 2015, China’s expected to enter the console market. This will be a great catalyst to improve AMD’s revenues.
AMD’s semi-custom segment focuses on high-volume, high-value applications that span gaming, set-top boxes, smart TVs, PCs, tablets, servers, high performance computing (or HPC), and infrastructure applications.
The semi-custom business is a low-margin business. This explains why Intel (INTC) and Nvidia (NVDA) chose to stay away from it. AMD’s management said “There is really no expenses from R&D standpoint, no sales and marketing dollars and whatever dollars you generate from a gross margin standpoint, falls to the bottom-line and that’s what excites us.”
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