AMD Investors Shouldn't Bet on More Video Game Consoles

AMD  (NYSE: AMD  )  hardware powers both Microsoft  (NASDAQ: MSFT  )  and Sony's  (NYSE: SNE  )  latest video game consoles, the Xbox One and PlayStation 4. This console revenue has benefited AMD in recent quarters, as both machines have sold faster than their predecessors.   

Some observers have begun to project AMD's current console dominance out into the foreseeable future. And AMD's management has suggested that console generations, which typically last 5-8 years, could shorten. In other words, there could be an Xbox One-2 and PlayStation 5 faster than otherwise anticipated, and AMD, as a supplier, could score another win.

Although possible, it seems unlikely. Rather, investors should consider that the days of dedicated consoles could be coming to an end. In fact, it's entirely possible the Xbox One and PlayStation 4 could be the last consoles Microsoft and Sony ever release.

Sony bets on game streaming 
Sony's Worldwide Studios President Shuhei Yoshida has said explicitly that the PlayStation 4 could be Sony's last dedicated living room video game console. In a recent interview with Re/code, Yoshida stated that Sony intends to turn PlayStation into a more service-orientated business, one based around cloud services rather than hardware sales.

PlayStation Now, Sony's upcoming cloud-based gaming service, begins its public beta test next month. For a fee, gamers will be able to stream games over the Internet to their PlayStation consoles, allowing them to rent games digitally and play older PlayStation titles on newer consoles.

But PlayStation Now's true potential lies in its ability to eliminate the PlayStation box entirely -- Sony plans to bring to the service to its Bravia TVs and, eventually, smartphones and tablets. Removing the actual PlayStation would eliminate a significant economic hurdle (the PlayStation 4 retails for $399) and expand Sony's base of potential customers.

Yoshida didn't rule out a PlayStation 5, saying that Sony would make such a device if developers demanded it. But it's very apparent that if Sony can get away with it, it will ditch dedicated hardware.

Microsoft taps the cloud to enhance the Xbox One 
At the same time, Microsoft is moving in a similar direction, though it hasn't yet embraced full game streaming. Instead, Microsoft has argued that by taking advantage of its dedicated Xbox cloud servers, developers can significantly enhance their Xbox One games.

At its BUILD developers conference in April, Microsoft highlighted the power of its Xbox cloud with a video game demo . One version of the game that relied strictly on local processing struggled to maintain a consistent frame rate, demonstrating noticeable lag. The other, which tapped the power of the cloud, performed fantastically well. As bandwidth speeds increase, and Microsoft's server technology improves, Xbox One games could become better over time.

Admittedly, Phil Spencer, the head of Microsoft's Xbox division, has said that he believes local hardware will be important "for a long time" and that the Xbox One is unlikely to be Microsoft's last console. Still, with cloud processing facilitating graphical improvements, it may not be necessary to refresh local hardware as quickly, and console generations could get longer, rather than shorter.

The last consoles? 
AMD clearly scored a win with the current generation of consoles, but investors in the chip-maker shouldn't count on a batch of new consoles popping up in the immediate future. The growth of streaming- and cloud-enhanced games throws the long-term viability of the console business into question, and release of more hardware, particularly in the near term, is far from certain.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 12, 2014, at 11:04 AM, rav55 wrote:

    As long as the console sells, both Sony and Microsoft will keep them on the market. They are still selling PS3 and Xbox 360.

    As far as suggesting that a product refresh would be an Intel/nVidia offering, don't count on it. The cost would be prohibitive.

    "PS5 and Xbox Two launch expected sooner than you think says AMD"

    http://www.trustedreviews.com/news/ps5-and-xbox-two-launch-e...

    These products are also likely to be cloud based streaming consoles.

    But refreshes of PS4.1 and XBOX ONE.1 are likely and one possible scenario would be a faster 8x Jaguar core or firmware updates for better API's, etc., etc.

    The suggest that PS4 or XBOX would close down within 4 years is ludicrous and a desparate attempt to spread FUD.

    You are so lame Mattera.

  • Report this Comment On June 12, 2014, at 12:54 PM, TMFMattera wrote:

    @rav55

    I'm not sure what you mean? I never once suggested that a product refresh could use competitors' hardware, nor did I say Microsoft/Sony would pull their current consoles off the market.

    Instead, I'm saying that a PS5 and Xbox 4 are not guaranteed offerings (PS5 in particular). There appears to be widespread speculation that such devices could be rolled out in the next few years, like the link you posted.

  • Report this Comment On June 12, 2014, at 3:01 PM, ta152h wrote:

    Clouds rain, and when they rain, you can't enjoy being outside, unless you're weird.

    In case you didn't notice, Microsoft wasn't able to sell the XBone requiring an internet connection. In case you didn't notice.

    So, now they'll be able to? Really? Sorry, you can't play this, the internet is down. Or have the game play badly because it's marginal.

    Or, you charge people to use the game, or can remove the privilege at any time if you start off free, but then just need a little every month to keep it running.

    Who would want such a machine? I want something that I own, I can turn on and it's going to be able to run the software, regardless of the internet, and I only have to pay for once, and can not be removed if the company decides the game is no longer popular enough to warrant streaming.

    This has already been rejected, in the XBone, because people don't want it! We want something that works without the internet.

    Everyone, like you, were saying this generation of consoles wasn't going to sell well, because people were using this or that device to do their gaming now. Consoles were obsolete, etc...

    I guess you were wrong. You're wrong again. You're just not understanding what people want, and basing it on what you've heard from other people that aren't understanding what people want. It doesn't make it any more true. Listen to the market, and how these machines are doing. It alone tells the truth.

  • Report this Comment On June 12, 2014, at 3:01 PM, ta152h wrote:

    Clouds rain, and when they rain, you can't enjoy being outside, unless you're weird.

    In case you didn't notice, Microsoft wasn't able to sell the XBone requiring an internet connection. In case you didn't notice.

    So, now they'll be able to? Really? Sorry, you can't play this, the internet is down. Or have the game play badly because it's marginal.

    Or, you charge people to use the game, or can remove the privilege at any time if you start off free, but then just need a little every month to keep it running.

    Who would want such a machine? I want something that I own, I can turn on and it's going to be able to run the software, regardless of the internet, and I only have to pay for once, and can not be removed if the company decides the game is no longer popular enough to warrant streaming.

    This has already been rejected, in the XBone, because people don't want it! We want something that works without the internet.

    Everyone, like you, were saying this generation of consoles wasn't going to sell well, because people were using this or that device to do their gaming now. Consoles were obsolete, etc...

    I guess you were wrong. You're wrong again. You're just not understanding what people want, and basing it on what you've heard from other people that aren't understanding what people want. It doesn't make it any more true. Listen to the market, and how these machines are doing. It alone tells the truth.

  • Report this Comment On June 12, 2014, at 3:58 PM, Woodenbullet wrote:

    @tah152h

    Have you been under a rock since last E3? Or are you just such a sony fanboy that you havnt even heard that all the things you listed about the Xbox one have since been changed. Both the PS4 and Xbox One don't have to be connected to the internet to play, both required a membership to play games online and enjoy most system services, both systems Spec are so alike that people argue without any knowledge of the tech that one is better than the other. Microsoft has listened to there customers and has changed a lot to satisfy everyone, and if your going to base it off the market then let me point out how the 360 out sold the ps3 because the 360 didn't have a outrageous $600 price tag. The true reasons PS4 has out sold the Xbox One is because of the price difference (Microsoft listened within months not years(PS3)), them not know much about the hardware, and people like you that spat garbage out and them not looking into it on their own. I don't own either of the consoles, I have sat back and watch everyone dish out hate for other consoles, mostly PS3 fanboys trashing Xbone for no reason, when without any doubt, the Xbox is the better console.

  • Report this Comment On June 12, 2014, at 8:05 PM, wownwow wrote:

    "Admittedly, Phil Spencer, the head of Microsoft's Xbox division, has said that he believes local hardware will be important "for a long time" and that the Xbox One is unlikely to be Microsoft's last console."

    Local hardware still needed whether it's call "console" or not or integrated into TV or not!

    "..., but investors in the chip-maker shouldn't count on a batch of new consoles popping up in the immediate future."

    How immediate is the immediate? It doesn't matter as long as each has an AMD chip in it.

  • Report this Comment On June 12, 2014, at 11:58 PM, TEBuddy wrote:

    Woodenbullet, I think an appropriate response to your post is duh. Do you think that is the exact point that Ta152h was making. And is completely opposite of could based only gaming.

  • Report this Comment On June 13, 2014, at 12:02 AM, TEBuddy wrote:

    Author, guess what, AMD will provide cloud based gaming hardware, so either way, AMD is in like Flynn. AMD's GPUs and CPUs are the most capable in the world when it comes to virtualization. AMD may already have a semi-custom design win for that purpose. So gaming will continue to be a revenue driver well into the future.

  • Report this Comment On June 13, 2014, at 1:18 AM, rav55 wrote:

    @TEBuddy

    Your are correct about AMD providing cloud based gaming graphic clusters.

    The hardware is right here:

    http://fireuser.com/blog/what_is_amd_sky_technology_for_the_...

    http://fireuser.com/blog/hp_proliant_ws460c_graphics_server_...

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