In 2022, Intel lost a crucial contract to design and produce the chip for Sony’s upcoming PlayStation 6, a setback for its nascent contract manufacturing division, according to multiple insiders familiar with the matter.
The company’s effort to outperform Advanced Micro Devices (AMD) in the bidding process for the PlayStation 6 chip design, alongside Taiwan Semiconductor Manufacturing Company as the producer, could have netted Intel billions and resulted in the fabrication of thousands of silicon wafers monthly, sources indicated.
Intel and AMD competed as the last two candidates in the bidding for this lucrative contract.
Securing the PlayStation 6 chip design would have not only bolstered Intel’s design segment but also significantly benefited its foundry business, a key element of CEO Pat Gelsinger’s turnaround strategy.
Gelsinger unveiled plans to establish a dedicated foundry unit in 2021 and officially launched it during an event in San Jose earlier this year. The potential partnership with Sony originated within Intel’s design sector but could have significantly enhanced the financial success of the foundry division following this year’s organizational changes.
This marks the first public disclosure of the details surrounding Intel’s unsuccessful bid for the contract related to Sony’s next-generation gaming console.
Typically, Sony’s gaming consoles achieve sales exceeding 100 million units over five years. For a chip designer, while the console business may not yield profits comparable to over 50 percent margins found in artificial intelligence chips, it still provides a reliable revenue stream derived from established technologies. Collaborating with Sony could have offered a much-needed boost to Intel’s contract manufacturing business, which has faced difficulties in acquiring substantial new clients.
A disagreement regarding the potential profit margins from chip sales to Sony hindered Intel’s ability to finalize the pricing terms, according to two sources. Consequently, AMD secured the contract following a competitive bidding process that filtered out alternatives like Broadcom, leaving only Intel and AMD in contention.
Intel’s discussions with Sony spanned several months in 2022 and included negotiations involving CEOS, engineers, and executives from both companies.
Following reports by Reuters regarding the negotiations for the PlayStation 6 and Intel’s inability to clinch the deal, an Intel spokesperson responded, saying, “We strongly disagree with this characterization but will not comment on any current or potential customer discussions. Our customer pipeline remains robust across both our product and foundry businesses, and we are focused on innovating to meet their needs.”
Both Sony and Broadcom did not provide comments when approached for feedback, and AMD also declined to comment.
Backwards Compatibility
The existing generation of PlayStation consoles utilizes bespoke chips designed by AMD.
Last week, Sony unveiled the PlayStation 5 Pro but has yet to reveal details about the next generation. Since its launch in 2020, Sony reported 20.8 million sales of the first-generation PlayStation 5 systems for fiscal 2023.
Like major tech firms such as Google and Amazon, which depend on third-party vendors for custom AI chip production, Sony relies on expert design contractors for its gaming system processors.
Chip designs for consoles often emphasize compatibility with previous models, enabling users to play older games on new systems. Transitioning from AMD, which created the PlayStation 5 chip, to Intel posed risks to backward compatibility—a topic discussed extensively between Intel and Sony teams, according to sources.
Ensuring backward compatibility could prove costly and demand significant engineering resources. Allowing PlayStation users to have access to games from earlier systems is a feature that Sony routinely incorporates into its next-generation consoles.
Following the initial wave of the AI boom led by Nvidia and AMD, Intel reported disappointing financial outcomes in August, which included plans to downsize its workforce by 15 percent to achieve $10 billion in savings. The company is also preparing to curtail capital expenditure on factory expansions, which form a critical aspect of its foundry initiative.
Seeking a Marquee Customer
The abrupt resignation of board member Lip-Bu Tan over divergent views regarding Intel’s strategic direction has added further challenges for the company. Gelsinger along with other executives presented future plans during a board meeting last week, according to several sources.
These potential strategies include discussions about divesting from business segments that are no longer feasible, as reported by Reuters. There will also be deliberations about the fate of Intel’s programmable chip unit, Altera, including the possibility of a sale, alongside the company’s expansion ambitions in Germany.
Under Gelsinger’s leadership, Intel has separated its design and manufacturing functions, reporting financial results independently since the first quarter of this calendar year. In April, the company recorded $7 billion in operational losses related to its manufacturing ventures.
Intel has sought to identify a marquee customer to publicly showcase its first manufacturing process, known as 18A, available to other businesses. Securing the PlayStation 6 chip contract might have occupied its foundry unit for an extended period, estimated at over five years, according to two sources.
According to Intel’s internal forecasts, a long-term contract with Sony could have injected approximately $30 billion into the company throughout the contract’s duration. The PlayStation 2, for example, sold around 150 million units since its introduction in 2000.
A contract with Sony would have significantly assisted Intel in attracting substantial new clients for its contract manufacturing unit, a prospect that remains challenging for the company as it endeavors to draw in customers for its advanced 18A process.
© Thomson Reuters 2024
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