Intel Corporation (INTC)’s Soft Landing, at Advanced Micro Devices (AMD)’s Expense

I believe the Computing Solutions revenue would have been even lower except for a “progress payment” from one of AMD’s console PC customers, presumably Sony. This payment isn’t listed in any of AMD’s financial documents, but was mentioned in the conference call. AMD management happily touted the fact that the next Playstation will use an AMD accelerated processing unit (APU) that combines an Intel Corporation (NASDAQ:INTC) compatible CPU with a Radeon GPU on a single chip.

AMD management were still being coy about Xbox, however, apparently unwilling to steal Microsoft’s thunder. Word is that Microsoft will reveal the next Xbox at the Electronic Entertainment Expo (E3) in June and that it will also use an AMD APU similar to the one in Playstation 4.

AMD management place great hope on their console business, with good reason. They estimate that console sales could be as high as 40 million a year, double what I previously estimated for the next generation Sony Playstation and Microsoft Xbox consoles. I estimate this could bring in about $1.6 billion in revenue a year, or about 25% of total revenue and 50% of Computing Solutions revenue. This wouldn’t completely make up for the loss of PC processor revenue if AMD’s market share continues to slide, however.

The console business could allow AMD to survive and even prosper, but it would be a smaller, leaner AMD. AMD seems to be moving aggressively to restructure for that future. Reduced operating costs, especially Marketing and G&A were largely responsible for holding down the operating loss to $98 million for the quarter, an 83% reduction from the year ago quarter. But profitability may remain elusive until console APUs start shipping in volume.

The article Intel’s Soft Landing – at AMD’s Expense originally appeared on Fool.com.

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