Microsoft is rumored to be in talks with Advanced Micro Devices (AMD) for a potential acquisition. According to an insider, the software giant approached AMD months ago but results of said talks have yet to be made public. This acquisition is speculated to revolve around the revival of Microsoft's chip design operations. Microsoft formed a division to design chips for its various products in 2006, with a focus on game consoles in particular. While the division has developed some chips, the software giant continued to rely on AMD for its Xbox One consoles and Nvidia Corp. for its Zune players. Reflecting Microsoft's lack of developmental solutions in order to make itself a viable competitor in the market. With AMD holding a valuation around $1.81 billion, the acquisition could be easily attained by Microsoft, given their approximate $95 billion in cash holdings.
The savings Microsoft would acquire if this deal comes to fruition are astronomical. The software giant pays AMD around $100 for every Xbox One system-on-chip. Life-to-date sales of Xbox One units are approximated at 12.6 million, equating to a payout of $12.6 billion to AMD for the system-on-chip. Therefore, the acquisition of AMD could also Microsoft $1 billion per year on it's consoles. If the company manages to develop appropriate chips for smartphones and tablets, Microsoft's savings would be even higher. If Microsoft acquires AMD, Sony will be faced with a difficult decision: pay Microsoft every time it sells a PlayStation 4, or create a new platform using technologies from AMDs competitors like Nvidia, Imagination Technologies, Intel, or ARM.
While the acquisition would not be necessary, it certainly would give Microsoft the competitive edge in consoles and, perhaps, the smartphone and tablet markets. Microsoft creates various hardware devices that could benefit from having direct access to a cheaper CPU and GPU source. The acquisition could also lead to increased synergy between the two that gives AMD's chips a leg up over its major competitors, furthering Microsoft and AMD's dominance of their respective industries. It is important to reiterate the aforementioned potential acquisition is a rumor at best. Neither company has delivered an official statement on the matter.