Tomahawk, WI 01/07/2014 (BasicsMedia) – Advanced Micro Devices, Inc. (NYSE:AMD) is under pressure from the industry leader Intel Corporation (NASDAQ:INTC). Both companies compete for the processor market in PCs, servers, smartphones and tablets. The superior technology of Intel come a huge disadvantage for AMD. But a rare opportunity recently showed up for the company when it won a component supply deal with Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE). This opportunity is expected to help AMD to offset its PC and server losses.
Advanced Micro Devices, Inc. (NYSE:AMD) is the supplier of chips used in Xbox One and Play Station 4. The company is said to be earning about $100 on every console sale, however, there are no accurate figures yet to this effect.
When these new consoles launched in November, they took the market by store and confounded analysts who had raised question about the viability of investment in games consoles at this time when most people are playing on their smartphones. Microsoft sold about 1 million consoles in just a matter of hours of the launch; the same number of consoles was sold by Sony.
Now sales for these devices are expected to hit 66 million by 2018. This prospect offers revenue opportunity for Advanced Micro Devices, Inc. (NYSE:AMD) which needs to do all that is possible to ward off competition in the chips market.
The challenge to this business strategy is that it calls for the production of custom-chips which might be quite expensive. However the company believes that the marginal gain it makes from the sale of the semi-custom processors top the console makers is just enough to run its operations. The prospects of more deals coming through the two companies also makes it a good comprise for Advanced Micro Devices, Inc. (NYSE:AMD) to continue with the arrangement.
Making of custom chips used in game consoles manufactured by Sony and Microsoft is just the beginning of things. Recent reports have shown that Microsoft seeking to cut a deal with Sony which will enable the latter to start manufacturing smartphones running on Windows Phone. If this deal goes through, it is likely that Advanced Micro Devices, Inc. (NYSE:AMD) could land the deal to supply chips used in the phones manufactured by Sony.
Even more, Microsoft recently acquire the devices and services division of Nokia which allows it to be smartphone maker. If the success witnessed with Xbox One is anything to go by, it looks likely that the company would wish to continue its partnership with Advanced Micro Devices, Inc. (NYSE:AMD).
Cost reduction efforts
Advanced Micro Devices, Inc. (NYSE:AMD) is doing more to boost its profits. While it is seeking more revenue opportunities, it is also cutting its costs. The company is reducing workforce and limiting expenditure to boost its free cash flow level. This looks as a winning formula for company going by its expectations to turn cash flow positive by second half of this year.
Generally, 2014 seems to be having a lot of positive things in store for Advanced Micro Devices, Inc. (NYSE:AMD). We hope that the company will be able to also boost its chances in the PC and server market to vie for whatever gains that is still left there, even though the markets are declining.