- Sony has reported robust PlayStation 4 sales over the recent holiday season.
- Both PS4 and Microsoft's Xbox One have continued to sell well and contain AMD's CPUs and GPUs.
- The healthy console sales by the two companies will help AMD avoid major revenue disappointments as investors wait for the company to launch its much-awaited Zen PC Processors during the second half of 2016.
PC gaming has overtaken console gaming over the last couple of years in a somewhat ironic reversal of trends given how weak the PC market has become lately. PC gaming software sales in 2015 totaled ~$23.5B compared to ~22.5B for console gaming software. On the hardware side of things, PC gaming hardware sales totaled $21.5B vs. 11B for console hardware sales.
Industry-wide console gaming seems to have hit a plateau and is currently growing at a rather anemic pace. But this is not something you can tell by looking at console sales by the industry leaders, Sony Corp (NYSE:SNE), with its PlayStation 4, and Microsoft (NASDAQ:MSFT), with Xbox One. Sony has just released its latest PS4 sales numbers, which are impressive by any count. Sony has been reporting cumulative PS4 sales since it launched the console in November 2013. The company says that it has sold 35.9M PS4 consoles since its launch, up from 30.2M units sold by late November. In other words, Sony sold a good 5.7M PS4 consoles during the holiday season alone. Sony also says that it managed to sell a staggering 35M+ games through its PlayStation stores and other brick-and-mortar stores during the holiday season. Meanwhile, PlayStation subscriptions grew 60% Y/Y (Sony does not divulge the numbers here).
Microsoft has remained mum ever since it revealed that it had managed to sell 10M Xbox One units by November 2014, about 18 months after the launch of the console. NPD tracks monthly sales for PS4 and Xbox One, and PS4 frequently outsells its rival more often than not. Nevertheless, Xbox One sales have been impressive as well. According to NPD data, combined sales of PS4 and Xbox One for 25 months up to November 2015 were 47% higher than those by their predecessors PS3 and Xbox 360, implying a 21.2% annual growth clip over the period. PS4 is expected to perform even better in 2016.
That’s great news for AMD (NASDAQ:AMD), because both PS4 and Xbox One are powered by AMD processors and graphic cards. Even better is the fact that sluggish gaming software sales have little effect on AMD. Both PS4 and Xbox One are kitted with a 28nm TSCM APU by AMD that features an eight-core Jaguar CPU paired with AMD’s Radeon 7000-series GPU. The two rival consoles are powered by a virtually identical AMD CPU, the only major difference being that PS4 is clocked at 1.6GHz while Xbox One does better with 1.75GHz.
When it comes to graphics, PS4 and Xbox One are again remarkably similar since they are both powered by an AMD APU with PS4’s GPU being slightly larger while Xbox One sports a higher clock speed. PS4 and Xbox One innards are largely similar, with the major differences being the RAM and storage units which are supplied by a different company other than AMD
So how much money does AMD make from selling gaming CPUs and GPUs to both Sony and Microsoft? IHS, well known for its phone/tablet tear-downs, estimated that AMD was receiving $100/unit when the PS4 launched two years ago. Since processor prices typically decline over the lifetime of a console, it’s likely that AMD now receives ~$80 for every PS4 unit sold. So for the fourth quarter, AMD probably realized $456M for PS4 CPUs and GPUs. Since the processors and graphic units for PS4 and Xbox One are quite similar, its likely that AMD receives roughly the same for every Xbox One sold as it does for PS4. Assuming Microsoft sold 50% as many Xbox One consoles as Sony PS4s over the holiday period, then AMD probably realized $228M for Xbox One CPUs and GPUs. That’s $684M from consoles for AMD, or nearly two-thirds of its revenue.
Looking at AMD’s Q4 2015 guidance, you suspect that most of that revenue was booked during the third quarter. AMD guided for a 10% Q/Q revenue drop during the fourth quarter of FY 2015. AMD reported revenue of $1.04B during the third quarter, which implies that it expects fourth quarter revenue of $954M. The huge drop is probably due to the fact that the company expects lower consoles sales during the first quarter of 2016.
Looking at those revenue figures, it becomes clear that AMD relies very heavily on PS4 and Xbox One console sales for its top line. With both consoles continuing to do well, AMD investors can rest assured that the company is not likely to spring any major revenue disappointments over the coming quarters. That’s important to help stabilize AMD stock as investors wait for the launch of AMD X86 Zen Processors during the second half of 2016. Zen is expected to breath new life into AMD’s battered PC processor business, and the fact that it will hit the market around the time when then PC market is expected to start rebounding bodes well for AMD.