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AMD Could Make Billions on Sony's PlayStation 4

AMD Could Make Billions on Sony's PlayStation 4
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AMD (NYSE: AMD) is the unlikely beneficiary of Sony's (NYSE: SNE) brand-new game console, PlayStation 4.

The company is providing a single-chip custom processor for the console, which includes an eight-core x86-64 AMD "Jaguar" CPU and a next-gen Radeon graphics engine.

AMD has a long-standing relationship with console manufacturers. The company acquired ATI (whose technology appeared in Wii, Xbox 360 and GameCube) in 2006. AMD chips also appear in Wii U.

This gives the company a near monopoly over the game industry. PS Vita and Nintendo 3DS -- which use processors built by ARM Holdings (NASDAQ: ARMH) -- are the only two new platforms that don't use AMD technology.

Since its competitors have already chosen AMD, it is possible that Microsoft (NASDAQ: MSFT) may use a different chipmaker to help build the next Xbox. In fact, the company used two other manufacturers -- NVIDIA (NASDAQ: NVDA) and ARM Holdings -- to build the Surface RT tablet. Surface Pro features Intel (NASDAQ: INTC) processors.

Even if Microsoft chooses one of those firms, however, AMD stands to make billions from its contracts with Sony and Nintendo.

From 1995 to 2013, Sony sold a total of 330.82 million consoles. Individually, the company sold 104.25 million PSone consoles, 153.68 million PlayStation 2 units and 72.89 million PlayStation 3s, amounting to an average of 110 million units per device.

Based on this average on the sales total of PlayStation 3, it is easy to assume that PlayStation 4 has the potential to sell between 70 and 110 million units over the next several years.

According to PCMag, an existing eight-core processor from AMD, such as the FX-6300, retails for $130. Assuming that the x86-64 "Jaguar" falls within that price range, AMD could be looking at revenue of at least $9.1 billion ($130 x 70,000,000 units = $9,100,000,000).

AMD is also providing Sony with the GPU, which (according to PCMag) could fall within the $200 range. This may provide Sony with an additional $14 billion in revenue ($200 x 70,000,000 units = $14,000,000,000).

These quick estimates assume that the component costs will remain the same throughout the years in which PlayStation 4 is produced, which is not likely to be the case. It also assumes that Sony will sell at 70 million PlayStation 4 units, which is far from a guarantee.

However, as these processors become cheaper to manufacture, AMD's profit will increase. Thus, even if it charges less for the CPU and/or GPU, it may actually earn more money.

Follow me @LouisBedigianBZ

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