Intel lost the opportunity to design and manufacture the chip for Sony’s PlayStation 6 in 2022, a contract that could have generated up to $30 billion in revenue, according to sources familiar with the matter. Intel competed against Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing Co. for the deal but ultimately lost to AMD.
Winning the contract would have been a major boost for Intel’s efforts to expand its contract manufacturing business, a key part of CEO Pat Gelsinger’s strategy to transform the company. Despite extensive discussions between Intel and Sony, which included meetings between the companies’ CEOs and engineers, disagreements over pricing led to Intel losing the contract. AMD secured the deal through a competitive bidding process.
BACKWARDS COMPATIBILITY
The latest generation of Sony’s PlayStation consoles is powered by custom chips developed through a design partnership with AMD. Sony recently revealed the PlayStation 5 Pro but has yet to introduce the next generation. As of fiscal 2023, three years after its 2020 release, Sony reported selling 20.8 million units of the first-generation PlayStation 5.
Like major tech firms such as Google and Amazon, which rely on external vendors for custom AI chip production, Sony also depends on skilled design contractors to create the processors for its consoles. A key consideration in console chip design is maintaining compatibility with previous system versions, enabling users to play older games on the new hardware. Transitioning from AMD, which designed the PlayStation 5 chip, to Intel would have jeopardized backward compatibility, a major topic of discussion between Intel and Sony engineers and executives. Ensuring this compatibility with earlier PlayStation versions would have been both expensive and resource-intensive, but it is a feature Sony often incorporates into its next-generation systems, allowing players to enjoy games they’ve already purchased.
Meanwhile, Intel has faced significant challenges, having missed the initial surge of the AI boom led by Nvidia and AMD. The company reported severe losses in the second quarter of this year and plans to cut 15% of its workforce to save $10 billion, alongside reducing capital expenditure on factory expansion, which had been central to its foundry strategy.
SEEKING A MARQUEE CUSTOMER
The sudden resignation of Lip-Bu Tan, a prominent board member, due to disagreements over Intel’s direction, added to the company’s difficulties. CEO Pat Gelsinger and it’s leadership presented a series of plans to the board at a recent meeting, including potential strategies to cut unaffordable business lines and review the future of its programmable chip division, Altera, and its German manufacturing expansion.
Under Gelsinger’s leadership, Intel has separated its design and manufacturing operations, reporting their financials separately starting this year. However, the company disclosed $7 billion in operational losses for its manufacturing division in April.
It has also struggled to secure a high-profile customer for its new manufacturing process, 18A, intended for external companies. If Intel had secured the PlayStation 6 chip contract, it could have kept its foundry unit occupied for over five years, according to sources.
The partnership with Sony could have brought Intel about $30 billion over the duration of the agreement, according to internal projections. Historically, the PlayStation 2 sold roughly 150 million units since its launch in 2000. A long-term contract with Sony would have bolstered Intel’s foundry business and attracted more clients to its 18A process, as per the same sources.
