Will AMD Supply Chips for Nintendo's Next Handheld Console?

Source: Nintendo.com

With sales of the 3DS starting to wind down, attention is turning to what Nintendo (NTDOY -1.25%) will put forth for its next handheld hardware. Now, a recent interview suggests that Advanced Micro Devices (AMD 1.33%) could be supplying the chips for Nintendo's next handheld. What would this mean for the two companies and their investors?

Some background
The last fiscal year saw approximately 57% of the company's revenue derived from hardware sales, so the introduction of a hit new portable sometime within the next two years is essential to the company's outlook. Comments from President Satoru Iwata and legendary game designer Shigeru Miyamoto have indicated that Nintendo may pursue a unified hardware ecosystem for its upcoming platforms. This would likely mean that much of the same software would be playable across the company's portable and home console platforms.

AMD is interested in dedicated gaming hardware
An interview in which AMD's vice president and general manager indicates that the company is interested in the dedicated portable market has recently been brought to light by a member of the NeoGaf gaming forum . The June interview had previously flown mostly under the radar, but its contents offer an interesting glimpse into a partnership that could have a major impact on the portable market.

The interview was originally published on a Barron's blog, and, in it, AMD executive Saeid Moshkelani points to dedicated handhelds as an area of interest for the company. Given that Sony is very unlikely to ready a traditional successor to its PlayStation Vita, this would suggest that the chipmaker is looking at a deal with Nintendo. Moshkelani also pointed to the 3DS as evidence that dedicated platforms were still moving solid numbers.

Is there money to be made with a dedicated portable gaming system?
Nintendo's next handheld platform is up against a wide array of challenges, but that doesn't mean that a deal to supply chips wouldn't be largely beneficial to AMD. The company has done a good job of securing contracts to provide processing units for dedicated gaming devices. It will provide chips for Sony's PlayStation 4 and Microsoft's Xbox One throughout their respective lifecycles, and both consoles look to do healthy numbers.

Completing a deal with Nintendo to deliver processing units for its next platforms would be a big win for AMD, even if those platforms sell less than their predecessors. For those interested in taking a position in AMD, the announcement of a deal with Nintendo would likely provide a notable valuation bump.

The company currently provides a highly diversified range of chips that are suitable for a wide range of products, so the suggestion that it will work with Nintendo on a new portable is not unreasonable. AMD already provides the graphics processing unit for the Wii U, and Nintendo has stated that the company is interested in using its current home console's hardware architecture as a template for future gaming platforms.

What would a deal with AMD mean for Nintendo?
For Nintendo, partnering with AMD for its next portable could be a smart move toward achieving the goal of a unified hardware ecosystem. The move could also help The House That Mario Built secure more third-party support, as working with more simplified AMD hardware could make porting to Nintendo's consoles an easier endeavor.

The possibility that AMD will supply the chips for Nintendo's next handheld also suggests that it might play a role in Nintendo's still mysterious "Quality of Life" business. Nintendo has stated that QOL will not be dependent on wearable tech, but it's not unreasonable to think that the budding enterprise will have some manner of hardware component. If that's the case, the company will likely want to aim for some manner of synergy between its health-based business and its gaming platforms. As such, chances are good that QOL is also being considered as a part of Nintendo's unified hardware ecosystem.  

Foolish final thoughts
If AMD supplies chips for Nintendo's next batch of hardware, it would create a substantial new revenue stream for the company. For Nintendo, the move would be a smart bit of strategy to help modernize its hardware platforms. The complex custom hardware in Nintendo's systems has made porting software more difficult than necessary and contributed to the lack of third-party support.

A partnership between AMD and Nintendo would be beneficial for both companies. For investors interested in gaining from such an arrangement, AMD looks to be the better option. The chipmaker would see significant benefits if it supplies processing units for Nintendo's next platforms even if the devices don't put up massive sales.