In a bid to revive its chip design operations, Microsoft Corp. may acquire Advanced Micro Devices, according to a source familiar with the matter. The software giant approached AMD several months ago, the source indicated. The result of the talks is unclear.

Microsoft Corp. has been selling game consoles for over ten years now and back in 2006 the firm even formed a division to design chips for its products, primarily game consoles. While this internal group has clearly developed some chips for Microsoft’s hardware, the company used chips designed by Advanced Micro Devices and Nvidia Corp. for its Xbox One consoles and Zune players, respectively. As it appears, Microsoft’s own chip design team cannot really develop competitive solutions for the company’s devices and in order to make its chip operations viable.

The details about negotiations are unclear, just like Microsoft’s exact proposal to AMD. However, since Microsoft has $95.3 billion in cash, whereas AMD’s market capitalization right now is $1.81 billion, the software giant may buy AMD relatively easily. In fact, current value of AMD is three times lower than the company paid for ATI Technologies in 2006.

Analysts estimate that Microsoft pays around $100 for every Xbox One system-on-chip to AMD. Life-to-date sales of Xbox One are around are around 12.6 million units, which means that Microsoft has already paid AMD around $1.26 billion for Xbox One chips. The acquisition of AMD could save it around a billion per year on Xbox One chips alone. It the company develops appropriate chips for smartphones and tablets, Microsoft’s savings could be even higher.

It is necessary to note that Microsoft does not really need AMD. The software giant needs system-on-chips to power its Xbox game consoles, Lumia smartphones, Surface tablets and possibly other hardware devices. It does not really need server processors or high-end graphics cards. However, AMD’s management will unlikely sell a part of AMD to Microsoft since its accelerated processing units (what Microsoft needs) are based on technologies developed for server microprocessors and high-end graphics cards.

The battle for video game console space is very strong. If Microsoft bought AMD, then Sony would be faced with a bad set of choices: put money in Microsoft’s pocket every time it sells a PlayStation, or try to create an entirely new platform by using technologies from Intel, Nvidia, ARM or Imagination Technologies.

Since game consoles is an important business for Microsoft, the company naturally wants to make sure that its technology provider does not go bankrupt or is acquired by a competitor. For example, if Samsung takes over AMD and builds-in its APUs into its TVs, it will automatically become a major player in the market of video games.

AMD and Microsoft did not comment on the news-story.

Discuss on our Facebook page, HERE.

KitGuru Says: Even though AMD is not really profitable, it has a set of technologies that could interest a lot of companies, including Samsung Electronics, Qualcomm, Xilinx, Chinese developers of microprocessors and other. Since AMD is evidently in trouble these days, it is not surprising that it is approached by other companies with acquisition proposals.

Become a Patron!