AMD thinks beyond PCs with new custom chip business unit

With a contract to make chips for Sony's PlayStation 4, the custom-chip business unit is off to a good start

By , IDG News Service |  IT Management

Read in January laid out a plan to return the company to profitability, saying that the custom-chip business could deliver as much as 20 percent of the company's revenue by the fourth quarter, and more than half the revenue in the coming years. AMD's fourth quarter of fiscal 2013 closes in December, and the custom-chip business is already well on its way to achieving the goal of 20 percent of the company's revenue by then, Moshkelani said.

AMD also has laid off employees and sold its Austin, Texas, campus.

AMD will not shy away from challenging chip designs, Moshkelani said, adding that if a customer wanted x86 and ARM architecture on one chip, AMD will make it happen.

"It's not something we do after 5 o'clock. It's a very focused... business unit," Moshkelani said.

The custom-chip business is not glamorous, but it has stability with a long-term pay-off involved, said Dean McCarron, principal analyst at Mercury Research.

"Any one design win for a million units or more becomes a meaningful business for them," McCarron said. "They key to all of this is getting the right design win."

An example is the PS4 chip business, which could generate millions of unit shipments for AMD, and get more profitable with time, McCarron said.

Like the PS3, the PS4 may have the same chip for many years and the initial profit margins may be low. But as manufacturing technology improves, the chip-making cost will drop and generate more profits for AMD.

"Games consoles are a good one. Tablets are going to be big," McCarron said.

Among the many failures in the custom-chip business, Motorola is a good example of success with a 20-year run, McCarron said. Motorola supplied custom chips for the first laser printers, and had a contract with Apple for PCs and other products that contributed to its success.

"It's an example of getting in with the right products and customers," McCarron said.

With the PC market slumping, AMD had to make a change, and the custom-chip business is a good choice, McCarron said. The company doesn't have financial flexibility like Intel, and it had to choose where to allocate its limited resources.

But it won't be a walk in the park, as AMD still has to contend with competitors like Intel, Nvidia and others vying for chip contracts, McCarron said.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com

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