According to three sources familiar with the situation, Intel lost a contract to design and manufacture Sony’s PlayStation 6 chip in 2022, dealing a huge damage to the company’s efforts to grow its embryonic contract manufacturing business.
According to two sources, Intel’s effort to outbid Advanced Micro Devices in a competitive bidding process to supply the design for the upcoming PlayStation 6 chip and Taiwan Semiconductor Manufacturing Co as the contract manufacturer would have resulted in billions of dollars in revenue and thousands of silicon wafers manufactured per month.
Intel and AMD were the final two bidders for the contract.
Winning the Sony PlayStation 6 chip design business would have been a triumph for Intel’s design sector as well as a win for the company’s contract manufacturing endeavor, or foundry business, which was the cornerstone of Intel CEO Pat Gelsinger’s turnaround strategy.
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Gelsinger announced Intel’s ambitions to establish a foundry business in 2021, and it was formally established at an event in San Jose, California, in February. The PlayStation chip agreement originated in Intel’s design sector, but it would have benefited the foundry business’s financial performance following its independence this year.
For the first time, details of the conversations and how Intel missed out on the contract for Sony’s yet-to-be-announced next-generation game machine are revealed.
Sony consoles typically sell more than 100 million units over the course of a half-decade. For a chip designer, the console industry generates a smaller profit than items with gross margins of more than 50%, such as artificial intelligence processors, but it provides a consistent business that may profit from technology that a company has already built. Sony’s business could also have boosted Intel’s contract manufacturing sector, which is now struggling to recruit large new clients.
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According to two sources, Intel was unable to reach an agreement with Sony on a price because of a disagreement over how much profit Intel would make from each chip delivered to the Japanese electronics giant. Instead, rival AMD won the contract through a competitive bidding procedure that eliminated others like as Broadcom, leaving only Intel and AMD.
In 2022, Sony and Intel held months-long discussions that included meetings between the two firms’ CEOs, as well as hundreds of engineers and executives.
In reaction to Reuters’ article on the PlayStation 6 talks and Intel’s failure to secure the business, an Intel representative stated: “We strongly disagree with this portrayal but will not comment on any existing or potential customer engagements. We have a strong client pipeline in both our product and foundry businesses, and we are completely focused on developing to satisfy their needs.”
Backwards compatibility
AMD completed the design contract for the current generation of Sony PlayStation consoles, which use proprietary CPUs.
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Sony launched the PlayStation 5 Pro last week, but has yet to reveal the next generation. Years after its 2020 launch, Sony reported selling 20.8 million first-generation PlayStation 5 systems in fiscal 2023.
Sony, like other tech corporations such as Google and Amazon, relies on outside vendors to help design and manufacture specialized AI chips.
Console chip designs often attempt to ensure compatibility with previous generations of the system, allowing customers to play older games on the current hardware. Moving from AMD, the manufacturer of the PlayStation 5 CPU, to Intel would have jeopardized backwards compatibility, which was discussed between Intel and Sony engineers and executives, according to the sources.
Backward compatibility with previous PlayStation versions would have been costly and required engineering resources. Sony frequently includes a function in its next-generation systems that allows PlayStation users to play games purchased for earlier systems.
Intel missed the first wave of the AI surge, which was dominated by Nvidia and AMD, and announced a terrible second quarter in August. Intel disclosed plans to reduce its staff by 15% to save $10 billion, as well as a proposal to minimize capital investment on manufacturing growth, which was a cornerstone of its foundry strategy.
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The abrupt resignation of Lip-Bu Tan, a high-profile board member, amid disagreements about Intel’s future exacerbated the company’s problems as Gelsinger and other Intel executives presented proposals to the board during a meeting last week, according to numerous sources. Early this month, Reuters reported on the next board meeting, citing a source familiar with the negotiations.
According to Reuters, the prospective options include ideas for reducing the number of businesses Intel can no longer afford to operate. Executives are also likely to discuss the future of Altera, Intel’s programmable chip unit, including a possible sale and manufacturing growth in Germany.
During Gelsinger’s tenure, Intel separated its design and manufacturing divisions and began reporting financial results separately in the first quarter of this year. In April, the corporation reported $7 billion in operating losses for its manufacturing division.
Intel has struggled to find a high-profile buyer for its first manufacturing process, known as 18A, which is open to other companies. If Intel had won the PlayStation 6 chip, it could have kept its foundry unit for almost five years, according to two sources.
According to Intel’s internal estimations, Sony’s console business could have brought in approximately $30 billion over the course of the deal, according to two individuals. The PlayStation 2 has sold around 150 million copies since its introduction in 2000.
A long-term Sony contract would have helped bring in significant new clients for Intel’s contract manufacturing operation, according to two sources, as Intel continues to struggle to recruit customers to its sophisticated 18A technology.
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