Where AMD is trouncing Intel

April 11, 2013: 7:14 AM ET

Chipmaker AMD hasn't had it easy. Now three of tech's most powerful companies have embraced it for the long-term.

121012014145-amd-chip-large-gallery-horizontalFORTUNE -- With its processors in 83% of PCs, Intel (INTC) overwhelmingly dominates traditional personal computing. But there's one area where the chip giant won't be winning any time soon: game consoles. If reports prove correct, Advanced Micro Devices (AMD) could manage what its competitor hasn't: getting its chips into all three of the major next-generation consoles.

Nintendo's (NTDOYWii U console, launched last fall, already packs a version of AMD's Radeon graphics chipset. (Its CPU, however, is made by IBM (IBM).) At Sony's (SNE) PlayStation 4 event this February, the Japanese giant revealed that its upcoming console would sport an eight-core processor based on the company's "Jaguar" design, combining the CPU and graphics capabilities on one silicon wafer. And Bloomberg recently reported that Microsoft's (MSFT) next-generation Xbox console, which will likely be announced on May 21, will use an AMD Jaguar processor not unlike the PlayStation 4's.

What would achieving this kind of trifecta really mean? It may be a boon for developers, making it easier to develop for multiple consoles -- particularly the PlayStation 4 and next-gen Xbox -- simultaneously. It would be an even bigger win for AMD. Headquartered in Sunnyvale, Calif., the semiconductor company had a rough 2012, losing two high-profile executives -- senior vice president and chief information officer Mike Wolfe, and corporate vice president for global information technology Trevor Schulze -- as well as seeing its revenues drop 17% with a net loss of nearly $1.2 billion.

MORE: 9 features the next Xbox must have 

That earnings drop is largely due to Intel's stranglehold on the PC market. Of course, the traditional PC market itself also isn't what it used to be: Worldwide shipments of PCs fell 14% during the first quarter of 2013. It marked the fourth consecutive quarter of decline and worst PC sales drop in history, squeezing AMD's bottom line. AMD is currently trying to pull off a turnaround. During the third quarter of 2012, it initiated a company restructuring, placing less emphasis on sluggish PC sales and focusing on areas of opportunity, including the $67 billion global video game market. The company hopes all-in-one products like its Jaguar chip will become a larger part of the business, from just 5% of overall revenues today to nearly 20% in 2014 -- after the arrivals of the PlayStation 4 and next-gen Xbox.

How those consoles will fare is another question entirely. While the current generation has seen some wild success, including the best-selling Xbox and Nintendo's original Wii, what will happen with new hardware is anybody's guess. Developers, for one, have expressed doubts about console gaming's future. What's more, the proliferation of devices like Apple's (AAPL) iPhone and Google (GOOG) Android-powered smartphones and tablets has changed consumers' gaming habits. And though PC sales have been dim, gaming on that platform seems to have entered a renaissance of sorts. Retail prices for the next Playstation and Xbox -- which could cost as much as $500 each -- have yet to be revealed; Nintendo's Wii U costs $299.

Still, AMD is so bullish on its new direction that vice president Roy Taylor recently told the hardware blog Bit-Tech that he sees the company following in the footsteps of Apple (AAPL) and IBM (IBM), becoming another rare example of a successful tech turnaround. That sounds like the kind of bravado-laced boast one might hear from a friend while playing a video game. At the very least, getting its chips into every major video game console does give AMD a rare opportunity: another shot.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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