April 8 (Bloomberg) -- Microsoft Corp. will use an Advanced Micro Devices Inc. processor in its next Xbox game console as it seeks to cut the cost of building machines and get developers to create more titles, people with knowledge of the matter said. AMD surged the most in almost two years.
The Xbox will use an AMD system-on-a-chip that combines powerful “Jaguar” central processing units with graphics chips, said one of the people, who sought anonymity because the plans aren’t public. The shift to the so-called x86 format ubiquitous in modern personal computers means Microsoft will drop the Power PC technology designed by International Business Machines Corp., and game discs made for the current Xbox 360 won’t be compatible.
The switch is a boon for AMD, which is also providing chips for Sony Corp.’s coming PlayStation 4, as it seeks a larger slice of the $67 billion global video-game market to help lessen its reliance on the shrinking PC industry. Microsoft also stands to benefit because game developers, who have moved toward making games for PCs and mobile devices, will find it easier to deliver those titles for the next Xbox.
“We’ll probably see many more titles because the console makers are saying the publishers are back in the driver’s seat,” said Richard Doherty, president of technology consulting firm Envisioneering Group. Developers won’t have to reinvent various features, such as “smoke, shading and reflections for each machine and can essentially create once and port once, and be done.”
Game publishers have complained that current consoles, each with a different architecture, come with a steep learning curve that drives up development costs, according to Doherty. Those companies will save money with the new chips, he said.
AMD, based in Sunnyvale, California, rose 13 percent to $2.59 at the close in New York, the most since July 2011. That left the shares up 7.9 percent this year, reversing what had been a year-to-date decline. Microsoft slipped 0.4 percent to $28.59 and has climbed 7 percent in 2013.
Microsoft, which had considered unveiling the Xbox 360’s successor this month, will do it later, three people said. The company is considering revealing plans for the new Xbox at the industry’s E3 expo in June or at a separate event in May or June, they said. Microsoft plans a May 21 event, The Verge reported today.
The company hasn’t released the next Xbox’s specifications, including whether it will have an optical drive or details of online-game features and entertainment services.
John Taylor, an AMD spokesman, declined to comment, as did David Dennis, a Microsoft spokesman.
Microsoft, based in Redmond, Washington, decided against an April event because it saw little competitive pressure from Sony, which plans to release the PlayStation 4 in time for the Christmas holidays, said two people.
At Sony’s February unveiling of the PlayStation 4, the Tokyo-based company demonstrated the controller and game play running on prototype hardware, without showing the machine. Critics including Amir Anvarzadeh, a Singapore-based manager for Asia equity sales at BGC Partners Inc., panned the lack of any “revolutionary” advances and the PS4’s emphasis on social-gaming features.
Nintendo Co.’s Wii U, another competitor, has been selling below the company’s initial forecasts since November. In January, the company said it expected to sell 4 million units in the year ending March 31, down from a previous outlook for 5.5 million.
For AMD, providing chips for game consoles is part of Chief Executive Officer Rory Read’s plan to lessen the company’s dependence on the declining personal computer market. Read is aiming to get more than 20 percent of the AMD’s revenue from areas other than PCs by the fourth quarter.
Traditional console makers face competition from cheaper machines like Ouya Inc.’s, and changes in game play that favor inexpensive titles for mobile devices such as Apple Inc. iPads and Samsung’s Galaxy Tab
U.S. retail sales of packaged video games fell 21 percent last year to $8.9 billion, according to researcher NPD Group, while revenue from games downloaded to computers and mobile devices rose 16 percent to $5.9 billion. Globally, the market including hardware and accessories was $67 billion.
The decision to switch to mainstream PC processors also will make games developed on previous generation consoles incompatible with the new systems, Envisioneering’s Doherty said. Sony has said it hopes to deliver some older games over the Web, using its Gaikai cloud gaming service.
In addition to the main Power PC processor, the current Xbox 360 contains a graphics chip made by a unit of AMD. The PlayStation 3 uses a custom Cell processor and graphics chips from Nvidia Corp.
The x86 technology licensed by Intel Corp. -- the so-called instruction set fundamental to all modern personal computers -- gives the new Xbox access to existing design elements, making the machine’s chip system cheaper to develop. The new also chips offer more computing power than parts Microsoft is currently using. Apple Inc. dropped the Power PC design from its Mac computers in 2005.
In the PlayStation 4, Sony is adopting an AMD custom system-on-a-chip processor that includes eight 64-bit Jaguar cores with a Radeon graphics processor from AMD’s ATI unit. The PS4 will come with a secondary custom chip responsible for downloading and processing games in the background.
At February’s unveiling, Sony lead system architect Mark Cerny said the PlayStation 4 will be a “supercharged PC architecture” with advanced memory and other features that will reduce development times by making some decisions within the hardware.
According to Envisioneering’s Doherty, the switch will help Sony bring down the initial cost to make its machines. For big developers such as Electronic Arts Inc. and Activision Blizzard Inc., the savings will allow them to reduce their reliance on $60 titles as they compete with smaller publishers making games selling for $20 and less.