Sony's (NYSE:SONY) latest PlayStation 5 (PS5) has been a big hit among consumers since it went on sale in November 2020, becoming the fastest-selling new console in U.S. history. The company shipped 7.8 million units of the device by the end of March 2021, outpacing the initial shipments of the 7.6 million PlayStation 4 units sold over a similar time frame back in March 2014.
It is worth noting that Sony has achieved this feat despite the PS5 being in short supply. Sony had moved 4.5 million units of the PS5 in the last two months of 2020, but that figure fell to 3.3 million units in the January-March quarter as the company was unable to make enough consoles to meet demand. Sony expects PS5 supplies to remain tight until 2022 thanks to massive demand, which it may not be able to meet despite ramping up production.
All of this bodes well for Advanced Micro Devices (NASDAQ:AMD), whose chips power the heart of the PS5. Let's see how.
AMD is winning big from the PS5 console
AMD's enterprise, embedded, and semi-custom (EESC) business has taken off in the past three quarters once Sony started ramping up PS5 production. In the second quarter of 2020, AMD's semi-custom revenue was down 4% year over year to $565 million. The chipmaker blamed "lower semi-custom product sales" for this drop, which was enough to offset the increase in AMD's EPYC server processor sales during the quarter.
The EESC business stepped on the gas in the third quarter of 2020. AMD reported a 116% spike in EESC revenue for that quarter to $1.13 billion, crediting "higher semi-custom product sales and increased EPYC processor sales" for the massive sales jump. It is also worth noting that the segment's revenue doubled quarter over quarter, indicating the massive impact that higher semi-custom sales had on AMD's top line.
EESC revenue grew at a stronger pace in Q4, jumping 176% year over year and 13% quarter over quarter to $1.28 billion as semi-custom processor sales remained robust. The terrific momentum has spilled over into 2021, as AMD reported a whopping increase of 286% in EESC revenue in Q1 to $1.35 billion. The EESC business produced 39% of AMD's total revenue in Q1, up from just 19% in the year-ago period.
So, the arrival of the PS5 is moving the needle in a big way for AMD already. The good news for AMD investors is that the console is still in its early days. Responding to an analyst query, AMD CEO Lisa Su remarked on the April earnings conference call:
I would say that we're still very early in the console cycle. And if you think about it, we're only a couple of quarters into it. So I think this is a big cycle, and there's a lot of momentum in the cycle.
Su's comments should age well as the PS5 is expected to sell in large numbers, and that could give AMD a major long-term boost.
A big opportunity lies ahead
The lifetime sales of the PS4 stand close to 116 million units. The initial momentum of the PS5 indicates that the console could do better than its predecessor, with sales expected to rise with each passing year. According to a third-party estimate, PS5's annual sales could jump to nearly 18 million units in 2021, 33.5 million units next year, 50 million units in 2023, and more than 67 million units in 2024.
Analysts expect PS5 sales to exceed 200 million units during its lifetime. So AMD and Sony are just scratching the surface of a multibillion-dollar opportunity, as the PS5 hasn't sold even 5% of its projected forecast thus far.
The semi-custom chip AMD supplies to Sony for the PS5 reportedly costs around $180. If that's indeed the case, the PS5 could unlock a revenue opportunity in excess of $35 billion for AMD in the coming years, making it one of the best ways to take advantage of soaring sales of the hottest new video gaming hardware on the market.