Despite a shrinking personal computer market and some under-performing acquisitions (namely ATI), Advanced Micro Devices, Inc. (NYSE:AMD) has an interesting future ahead with the next generation of Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE) consoles on the horizon.
Advanced Micro Devices, Inc. (NYSE:AMD) has exclusive contracts with Microsoft Corporation (NASDAQ:MSFT) and Sony for its technology to be utilized in both the Xbox One and Playstation 4, the reason being that x86 architecture is the basis for modern computing. Unlike earlier generations of consoles, these next-gen counterparts are poised to host a myriad of applications supporting gaming, multimedia, internet browsing and shopping among other features. We are witnessing a continuing trend where the console has become the media hub of the average home while the personal computer takes a step back.
This mixture of events is the break AMD needs to redefine itself as a diverse, successful semiconductor company. The future for consoles looks bright, with China officially announcing it will lift its foreign console game ban provided companies develop their products in the free trade zone designated by the government. This development opens a fresh, densely populated market with gaming already ingrained in the culture. I have no doubt console giants like Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE) will comply with such a request.
This means more console sales, and with that, more demand for Advanced Micro Devices, Inc. (NYSE:AMD)’s chips and cores. The best part is it doesn’t matter who wins this console war – whether it is the Playstation 4 or Xbox One – AMD comes out on top because it is supplying hardware for both consoles.
Before you say, “But what about the Nintendo’s console? It has the highest market share of all consoles when measured globally,” consider that Advanced Micro Devices, Inc. (NYSE:AMD) is in fact also supplying its silicon to Nintendo for the Wii U.
But will there be demand?
So with AMD supplying to all three major consoles, what remains to be seen is the volume of product that will be in demand.
Based on comments from console manufacturers like Sony Corporation (ADR) (NYSE:SNE), sales forecasts are looking good and possibly better than previously thought, with a surprised Sony Computer Entertainment CEO Andrew House stating “demand may well outstrip supply.” There is similar news on the Xbox front, with Microsoft Corporation (NASDAQ:MSFT) stating, “Xbox One pre-orders are trending ahead of Xbox 360 pre-orders during the same time period and have already sold out at most major US retailers.”
This information indicates that this next generation of consoles will be just as successful – if not more so – than the previous generation. In addition, Sony Corporation (ADR) (NYSE:SNE) has learned its lesson regarding pricing strategy. This time around investors can expect Sony to not sell the new Playstation at a loss – part of a strategy employed by both Microsoft and Sony Corporation (ADR) (NYSE:SNE) last generation. This will buffer the business from negative returns in the unlikely event Playstation game sales are poor.
In summary – great news for Sony investors.
Comparatively, I’m not as keen on Microsoft Corporation (NASDAQ:MSFT)’s offering. While sales forecasts look healthy, Microsoft’s public relations coming up to the launch of the Xbox One have been nothing short of a disaster. Journalists reeled at the Xbox One media briefing, where Microsoft Corporation (NASDAQ:MSFT) announced a $499 price tag, $100 more than the Playstation 4. In addition, the outcry from the public regarding restrictions attached to the console was so fierce that Microsoft was ‘forced’ to remove said restrictions by way of public opinion. Despite making changes, Microsoft was heavily criticized in the gaming media for its handling of the debacle.
As a result, investors might witness Microsoft Corporation (NASDAQ:MSFT) lose its edge to Sony Corporation (ADR) (NYSE:SNE)with this generation of consoles. Coming up to the highly anticipated release of these consoles brand image is more important than ever and I feel like Microsoft may have dropped the ball on this one.