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I realize they've always been an underdog compared to Intel, but they still dominated the console market. When every xbox and PS4 sold as your CPU in it, how we

I realize they've always been an underdog compared to Intel, but they still dominated the console market. When every xbox and PS4 sold as your CPU in it, how were they not profitable? Where they dumping all that money into the Zen code R&D? With the Meltdown craziness, will this be the year we start to see AMD return to the data centre?

shmerl 9y ago
I think console market is an unhealthy case, because consoles are sold at loss by big incumbents (Sony and MS), who try to reap the profits through lock-in rather than hardware competition. So AMD can barely profit on hardware there. It's starting to improve lately since it's becoming a bit more competitive and less stagnated, you can notice that the rate of console hardware upgrades is increasing. Their prices will also become more real in result.
- AlphaSite 9y ago
  AMD probably used consoles to keep the wafer supply agreement above the minimum threshold.
  - oatmealsnap 9y ago
    Agreement with who?
    - dragontamer 9y ago
      Global Foundries (aka: former AMD fabrication lab. GloFo spun off as AMD lost money in the late 00s) Despite spinning off, GloFo and AMD remained tightly aligned businesswise, and AMD signed agreements such as minimum silicon wafer usage.
      - shmerl 9y ago
        Why did they have to spin off the foundries to begin with?
        foepys 9y ago
        To not go bankrupt.
        dragontamer 9y ago
        Indeed. People may not know just how bad AMD's situation got. But by 2013, AMD had sold its headquarters in a "reverse mortgage" to remain solvent. https://arstechnica.com/information-technology/2013/03/amd-sells-its-austin-hq-for-164-million-to-raise-some-quick-cash/ https://arstechnica.com/information-technology/2013/03/amd-s... AMD had almost a full decade without making money.
        Tuna-Fish 9y ago
        They were rapidly running out of money, and running a competitive fab requires billions of investment every year. They could no longer sustain their fab operations, so they spun them off and sold them to ATIC (which is part of the Abu Dhabi investment fund, which is a project by Abu Dhabi meant to turn their oil revenues into something sustainably profitable for when the oil runs out). In order to make the fab seem like something someone would want to buy, AMD tied their futures into it by entering into a wafer supply agreement where they will buy certain amounts of GloFo:s production whether they need it or not. This agreement was a millstone around AMD's neck during the worst years. It means that AMD absolutely wants to sell at least a certain amount of silicon, even at negative margin if necessary.
- Grazester 9y ago
  The PS4 was never sold at a loss(Sony learnt from their past with the PS2 and PS3). The Xbox One however was https://arstechnica.com/gaming/2013/11/report-399-playstation-4-costs-about-381-to-build/ https://arstechnica.com/gaming/2013/11/report-399-playstatio...
  - georgeecollins 9y ago
    It's a bit pedantic of me to say this, but if your cost of goods is $381, and the retail price is $399, you are losing money. There is the retailers cut, distribution, marketing, R&D etc. They were losing money to invest in the platform. The article says the PS3 cost of goods was $800 per unit at launch, but it is worth remembering that the PS3 was an investment in two strategic initiatives for Sony. One was the PS3 standard, that they would earn future software royalties on. The other, and at the time maybe more important, was the BluRay standard.
    - dbspin 9y ago
      Three... They were also investing heavily in the Cell architecture, codeveloped with IBM and Toshiba. That one just didn't pan out.
      - kuschku 9y ago
        well, it kinda - just not in the way they expected. The changes game developers had to make to handle cell allowed them later on to support multicore CPUs and GPGPU much easier.
zitterbewegung 9y ago
Console market is where usually the chip maker in second or third place tries to make a play for their business because console makers are basically assured sales but they will have strange requirements. PS3 XBOX360 and Nintendo Wii were all IBM chips . They tried a bunch of new architectures but for the most part developer ergonomics was horrible. So for the PS4 and XBOX One they decided they needed regular computer parts. I'm sure AMD and Intel may have put bids on it but AMD would be the one that would have been extremely motivated to make sales to Microsoft and Sony. As time goes on you can make higher and higher margins since the chips don't change (but on the other hand we are seeing console revisions within the traditional generation). But, I think that the margins will keep on increasing.
- vvanders 9y ago
  Those margins are usually baked into the contract and decrease over the lifetime of the console. At least that's how I've heard it told with people who were in the know.
  - ZenoArrow 9y ago
    I'd suggest those people "in the know" are probably talking out of their arse. It's commonplace for consoles to go through a number of hardware revisions over the lifetime of the console. These revisions are rarely made for performance reasons, but instead would be made to improve reliability, security and manufacturing cost. Setting aside security (which is would be done as reaction to a hack that can't be patched with software), the whole idea is to increase the margins for the manufacturer. Note that the brand owner may, in some cases, sell consoles at a loss, but the manufacturer is very unlikely to be working to the same business model.
    - vvanders 9y ago
      Eh, I've been in the consumer electronics space a while and it's pretty common for a SoC/CPU vendor to offer a time-based tiered price as a part of a procurement contract. As your chip goes from cutting edge process technology($$$) to mid-tier($$) and commodity($) they usually pass that savings along, otherwise they would incentivize going for a mid-cycle refresh and suddenly a large revenue stream for your chip dries up as a product moves to a (potentially) different vendor.
icegreentea2 9y ago
They previously (I saw previously cause they're doing a mild re-org right now), organized their console business under their "Enterprise, Embedded & Semi Custom" business unit which is broken out by itself in the article (https://www.extremetech.com/wp-content/uploads/2018/01/AMD-Q4-Financials.jpg https://www.extremetech.com/wp-content/uploads/2018/01/AMD-Q...). You can see that in 2016, their console (+ other stuff) was making an operating income (basically revenue - cost of business not including R&D) roughly the same size as their losses in their main CPU&GPU business. This is before their ~400 operating losses in other categories. I think R&D gets rolled into that? I'm not sure
chillydawg 9y ago
Opterons were the only server chip worth using for years, until Xeons got good.
Florin_Andrei 9y ago
> When every xbox and PS4 sold as your CPU in it, how were they not profitable? I'm guessing razor-thin margins to get the contracts.

shmerl 9y ago

I think console market is an unhealthy case, because consoles are sold at loss by big incumbents (Sony and MS), who try to reap the profits through lock-in rather than hardware competition. So AMD can barely profit on hardware there. It's starting to improve lately since it's becoming a bit more competitive and less stagnated, you can notice that the rate of console hardware upgrades is increasing. Their prices will also become more real in result.

AlphaSite 9y ago
AMD probably used consoles to keep the wafer supply agreement above the minimum threshold.
- oatmealsnap 9y ago
  Agreement with who?
  - dragontamer 9y ago
    Global Foundries (aka: former AMD fabrication lab. GloFo spun off as AMD lost money in the late 00s) Despite spinning off, GloFo and AMD remained tightly aligned businesswise, and AMD signed agreements such as minimum silicon wafer usage.
    - shmerl 9y ago
      Why did they have to spin off the foundries to begin with?
      - foepys 9y ago
        To not go bankrupt.
        dragontamer 9y ago
        Indeed. People may not know just how bad AMD's situation got. But by 2013, AMD had sold its headquarters in a "reverse mortgage" to remain solvent. https://arstechnica.com/information-technology/2013/03/amd-sells-its-austin-hq-for-164-million-to-raise-some-quick-cash/ https://arstechnica.com/information-technology/2013/03/amd-s... AMD had almost a full decade without making money.
      - Tuna-Fish 9y ago
        They were rapidly running out of money, and running a competitive fab requires billions of investment every year. They could no longer sustain their fab operations, so they spun them off and sold them to ATIC (which is part of the Abu Dhabi investment fund, which is a project by Abu Dhabi meant to turn their oil revenues into something sustainably profitable for when the oil runs out). In order to make the fab seem like something someone would want to buy, AMD tied their futures into it by entering into a wafer supply agreement where they will buy certain amounts of GloFo:s production whether they need it or not. This agreement was a millstone around AMD's neck during the worst years. It means that AMD absolutely wants to sell at least a certain amount of silicon, even at negative margin if necessary.
Grazester 9y ago
The PS4 was never sold at a loss(Sony learnt from their past with the PS2 and PS3). The Xbox One however was https://arstechnica.com/gaming/2013/11/report-399-playstation-4-costs-about-381-to-build/ https://arstechnica.com/gaming/2013/11/report-399-playstatio...
- georgeecollins 9y ago
  It's a bit pedantic of me to say this, but if your cost of goods is $381, and the retail price is $399, you are losing money. There is the retailers cut, distribution, marketing, R&D etc. They were losing money to invest in the platform. The article says the PS3 cost of goods was $800 per unit at launch, but it is worth remembering that the PS3 was an investment in two strategic initiatives for Sony. One was the PS3 standard, that they would earn future software royalties on. The other, and at the time maybe more important, was the BluRay standard.
  - dbspin 9y ago
    Three... They were also investing heavily in the Cell architecture, codeveloped with IBM and Toshiba. That one just didn't pan out.
    - kuschku 9y ago
      well, it kinda - just not in the way they expected. The changes game developers had to make to handle cell allowed them later on to support multicore CPUs and GPGPU much easier.

zitterbewegung 9y ago

Console market is where usually the chip maker in second or third place tries to make a play for their business because console makers are basically assured sales but they will have strange requirements. PS3 XBOX360 and Nintendo Wii were all IBM chips . They tried a bunch of new architectures but for the most part developer ergonomics was horrible. So for the PS4 and XBOX One they decided they needed regular computer parts. I'm sure AMD and Intel may have put bids on it but AMD would be the one that would have been extremely motivated to make sales to Microsoft and Sony. As time goes on you can make higher and higher margins since the chips don't change (but on the other hand we are seeing console revisions within the traditional generation). But, I think that the margins will keep on increasing.

vvanders 9y ago
Those margins are usually baked into the contract and decrease over the lifetime of the console. At least that's how I've heard it told with people who were in the know.
- ZenoArrow 9y ago
  I'd suggest those people "in the know" are probably talking out of their arse. It's commonplace for consoles to go through a number of hardware revisions over the lifetime of the console. These revisions are rarely made for performance reasons, but instead would be made to improve reliability, security and manufacturing cost. Setting aside security (which is would be done as reaction to a hack that can't be patched with software), the whole idea is to increase the margins for the manufacturer. Note that the brand owner may, in some cases, sell consoles at a loss, but the manufacturer is very unlikely to be working to the same business model.
  - vvanders 9y ago
    Eh, I've been in the consumer electronics space a while and it's pretty common for a SoC/CPU vendor to offer a time-based tiered price as a part of a procurement contract. As your chip goes from cutting edge process technology($$$) to mid-tier($$) and commodity($) they usually pass that savings along, otherwise they would incentivize going for a mid-cycle refresh and suddenly a large revenue stream for your chip dries up as a product moves to a (potentially) different vendor.

icegreentea2 9y ago

They previously (I saw previously cause they're doing a mild re-org right now), organized their console business under their "Enterprise, Embedded & Semi Custom" business unit which is broken out by itself in the article (https://www.extremetech.com/wp-content/uploads/2018/01/AMD-Q4-Financials.jpg https://www.extremetech.com/wp-content/uploads/2018/01/AMD-Q...). You can see that in 2016, their console (+ other stuff) was making an operating income (basically revenue - cost of business not including R&D) roughly the same size as their losses in their main CPU&GPU business. This is before their ~400 operating losses in other categories. I think R&D gets rolled into that? I'm not sure

chillydawg 9y ago

Opterons were the only server chip worth using for years, until Xeons got good.

Florin_Andrei 9y ago

> When every xbox and PS4 sold as your CPU in it, how were they not profitable? I'm guessing razor-thin margins to get the contracts.