AMD’s Microsoft Xbox One Deal Could Be Worth $3 Billion, Ex-Exec Says

AMD’s agreement with Microsoft to build chips for the upcoming gaming console is a big win for its semi-custom silicon efforts.

Advanced Micro Devices' deal to supply chips to power Microsoft's upcoming Xbox One gaming and entertainment console could be worth as much as $3 billion, according to a former company executive who now works for rival Nvidia.

In a statement on his LinkedIn site, Bob Feldstein, former vice president of strategic development at AMD and current vice president of technology licensing at Nvidia, wrote that AMD developed custom silicon for Microsoft to be used in its Xbox One console, and that "this project is valued at $3+B."

Not only does the agreement with Microsoft represent a good deal of money for AMD, but it also is a significant step in the chip maker's efforts in creating a semi-custom silicon business, part of AMD's strategic plan to expand into new growth areas to diversify its business and reduce its reliance on the contracting PC market.

Feldstein said he was part of the AMD team for the Xbox One project, with his involvement being "focused on business management and supply agreement negotiations. This required the coordination of multiple functional teams within AMD, as well as regular customer meetings with leadership teams responsible for handling the challenges of complex, multi-year deals," he wrote.

Microsoft officials on May 21 officially unveiled the Xbox One, a console four years in development that not only can be used for playing video games but will be a central computing feature for most forms of entertainment, from TV to movies. During the event, the officials reportedly said little about AMD's involvement, which primarily centers around providing the eight-core accelerated processing unit (APU) that will power the device.

No date has been set for the Xbox One's release, although more information could be forthcoming at Electronic Entertainment Expo 2013 June 11-13 in Los Angeles.

The Xbox One constitutes the latest win for AMD's semi-custom chip business. Sony in April announced it will use AMD chips in its upcoming PlayStation 4 gaming console, and last year Nintendo said it will do the same for its Wii U device. According to Feldstein, Sony's PlayStation also will be powered by a custom eight-core APU.

AMD, like many other established tech vendors, has been hit hard by the declining global sales of PCs as consumers and business users instead are buying more tablets and smartphones, most of which are powered by chips designed by ARM and made by the likes of Samsung, Qualcomm and Nvidia. Under CEO Rory Read, the company is looking to expand into new areas, including ultramobile devices, low-power microservers, embedded devices and semi-custom chip development.

AMD began organizing the semi-custom business last year and officially launched it May 2. Saeid Moshkelani, corporate vice president and general manager at AMD, said during a press briefing that the business's engineers will leverage AMD's processor, graphics and multimedia IP to create custom chips for a range of devices, from gaming consoles and set-top boxes to tablets, smart TVs, notebooks and servers.

They will be able to use a modular approach to building the custom systems-on-a-chip (SoCs), reusing AMD's silicon IP and design building blocks that can then be integrated with the customer's own IP to create the unique solutions.