While the 4th edition of Sonys flagship console is once again tipped as the most anticipated machine in technological entertainment, the reputable graphic gurus, Nvidia who made chipsets for both the first Xbox and the Playstation range were revealed to have been dropped out earlier this month when Sony announced the PS4 graphics would be handled by AMD. AMD who previously took over ATI is also rumored as the chipset maker for the next Xbox; but Nvidia do not seem to be overly concerned by the loss. Tony Tamasi, Senior VP of content and technology at Nvidia told Gamespot the failure to reach an agreement with Sony was down to opportunity cost.
Im sure there was a negotiation that went on, Tamasi said. and we came to the conclusion that we didnt want to do the business at the price those guys were willing to pay.Having been through the original Xbox and PS3, we understand the economics of and the tradeoffs.Were building a whole bunch of stuff, continued Tamasi, and we had to look at the console business as an opportunity cost. If we say, did a console, what other piece of our business would we put on hold to chase after that? In the end you only have so many engineers and so much capability, and if youre going to go off and do chips for Sony or Microsoft, then thats probably a chip that youre not doing for some other portion of your business. And at least in the case of Sony and Nvidia, in terms of PS4, AMD has the business and Nvidia doesnt. Well see how that plays out from a business perspective I guess. Its clearly not a technology thing.AMD will be expecting to cash in on their latest deal with Sony, having been forced to sell its Austin HQ for $ 164 million to raise quick cash earlier this month. Stacy Rasgon from Bernstein Research and Craig Berger from FBR Capital both downgraded the companys shares from Outperform to Market Perform in October 2012. Berger wrote that management miscalculated and mis-executed strategies raised the companys potential burn rate, while laying off engineers did not help:
We now have less confidence in go-forward cash burn given rapidly declining ASPs and managements new refusal to provide gross margin guidance. Thus, we worry about the magnitude of intended pricing cuts and gross margin impacts as AMDs cash bleed could intensify. Further, while we previously assessed cash to be sufficient for the next year, we now see scenarios where AMD may raise cash sooner, particularly with pending GlobalFoundries payments and with 4Q12 sales down a whopping 33% YOY. Further, managements ongoing misexecution in our opinion seems to be contributing too (building too much inventory, firing top operational managers, channel misalignment, withdrawing from broad swaths of the market). Finally, the firm announced 15% head-count reductions, which will make it more difficult to engineer and sell competitive products.It's looking likely that the console war wont only be waged on the surface, but from within and behind the scene; gamers should ready themselves for what could be a historical benchmark in next-gen gaming. A cause for concern for hardcore Nvidia fanboys? AMD have come a long way and deserve their fate with Sony? Please let us know your thoughts in the comment section below.
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