Next Gen Console Winner Is IBM

Via Joystiq, an article on the Seattle Times points out what many of us have already known: IBM is the real winner of the console war. The company is providing chips for all three consoles, and is busily crafting money hats for everyone involved. From the article: "Using the engineering consulting work it did for Microsoft, Nintendo and Sony as a model, IBM has formed a new 'technology-collaboration solutions' unit that's expected to post $4 billion in revenue this year. Internal projections call for that division to hit $10 billion by 2010 and $20 billion by 2015. Those targets may sound high for a $91 billion company that is barely able to grow overall revenue. But hardware-division chief William Zeitler hopes to achieve them by replicating IBM's video-game collaborations in such industries as telecom, defense and medicine."

Comments

Cute

[beringreenbear]

I'm sure this is something everyone on Slashdot already knew, but it's nice to see the business press stating the obvious on the eve of the third and final "next gen" console launch. For me, personally? I'll look at the consoles come April and decide if I want to buy one then. In the meantime, my PS2, GameCube, and PC will "hold" me in terms of gaming.

Don't Forget the Silicon

[eldavojohn]

Yeah, IBM did win. But every time a technological war is waged between two competitors in the United States, the default winners are the companies in the Philippines and other silicon producing countries. I mean, there's probably a lot of companies with really bland names that jump for joy when this stuff happens. IBM is cashing in but I'm sure everyone along the way from basic elements to full fledged product enjoys it too.

Re:Don't Forget the Silicon

[servognome]

Yeah, IBM did win. But every time a technological war is waged between two competitors in the United States, the default winners are the companies in the Philippines and other silicon producing countries. I mean, there's probably a lot of companies with really bland names that jump for joy when this stuff happens. IBM is cashing in but I'm sure everyone along the way from basic elements to full fledged product enjoys it too.

Not really. Those "bland name" companies are supplying to pretty much everybody. It doesn't matter if IBM sells 100M chips or Samsung does, unless the industry as a whole expands it's a zero-sum game for the building block companies.

Re:Don't Forget the Silicon

[stevesliva]

But every time a technological war is waged between two competitors in the United States, the default winners are the companies in the Philippines and other silicon producing countries.

Sort of true. TSMC in Taiwan is a big winner, being the foundry for the ATI and Nvidia GPUs, while Chartered in Singapore has been doing great as a second source for the XBox chip, the original source being IBM's East Fishkill fab. However, the Cell chip is made by IBM in East Fishkill and Sony in Nagasaki. The Wii chip is made by IBM in East Fishkill. The GPU in the XBox also a second die in the package fabbed by NEC in Japan. But no doubt there's a number of other chips from foundries and IDMs all over.

Re:Don't Forget the Silicon

[cmdrpaddy]

"Not really. Those "bland name" companies are supplying to pretty much everybody. It doesn't matter if IBM sells 100M chips or Samsung does, unless the industry as a whole expands it's a zero-sum game for the building block companies."

Its not an either/or situation though. BlandName Ltd. supplies silicon for IBM, they make money. Samsung asks them to supply them with silicon, they do, so they make even more money. Just because IBM gets silicon off them doesn't mean Samsung won't. Where, exactly is the zero-sum part?

Re:Don't Forget the Silicon

[TerranFury]

I thought IBM did nVidia's GPUs?

Re:Don't Forget the Silicon

[servognome]

Its not an either/or situation though. BlandName Ltd. supplies silicon for IBM, they make money. Samsung asks them to supply them with silicon, they do, so they make even more money. Just because IBM gets silicon off them doesn't mean Samsung won't. Where, exactly is the zero-sum part?

Base material suppliers are typically selling to everybody in the industry. It doesn't matter if IBM or Samsung or AMD chips inside those consoles, its all coming from the same silicon, that's the zero-sum.
For example in the LCD market, there are only 3 or 4 major panel makers. In the 20" display market, if Apple captures marketshare away from Dell, the panel manufacturer doesn't gain, because both companies use the same panel.

Re:Don't Forget the Silicon

[stevesliva]

A few here and there, but not most.

Re:Don't Forget the Silicon

[cmdrpaddy]

But if you look at it from the point of view of completely new products, surely the fact that none of the XBox360, Wii or PS3 were being produced before, its a completely new revenue stream for the material suppliers and there is no market share being stolen? I could see how if you factor in the reduced production of Xboxes, PS2s and Gamecubes you might end up with no more than before but surely these new consoles are making these companies more money than the older ones were when they were first released?

Don't mean to be sour, but...

[Jesterboy]

I knew this already.

Gee, maybe I should start a blog or something...? ^_^

Re:Don't mean to be sour, but...

[aliendisaster]

you should sue for copyright infringement

Re:Don't mean to be sour, but...

[NinjaFarmer]

you should sue for copyright infringement

Dude, I fucking said it first. Where's my money?

To be literal

[Tarlus]

IBM isn't making a console, therefore they can't be winning the console wars.

It is true, however, that they're winning the microchip wars for non-PC gaming.

Re:To be literal

[Klintus Fang]

not even that.

the real point as I see it (and as the article states), is that IBM is leveraging the experience they have working with the console makers to solve their technical design problems to make a business unit that will pursue the same kinds of collaborations in telecom and elsewhere. it's not about selling the chips. It's about selling the technical expertise that is required to design products that use those chips.

nobody wins big by manufacturing the components that go into the console. "winning the micro-chip wars for non-PC gaming" is not much of a victory at all. The console makers sell those things at a loss for the most part, which means they nickel and dime their component suppliers to death on the costs. If you provide the chips (gpu/cpu), you win bragging rights, but that is about it. From a pure profit perspective you'd be much better off selling those chips to the non-console market where the profit margins on hardware are higher.

It's not about the chips. I think that probably works well for IBM's business model. I've never quite been able to figure out exactly how IBM operates, but they don't seem interested in making profits on hardware sales (not primarily anyway). They seem interested in making profits on selling high end technical services to other businesses.

Re:To be literal

[Captain Splendid]

I thought the pedant's meeting wasn't until tommorow?

Re:To be literal

[AcidLacedPenguiN]

whoosh.

Re:To be literal

[poot_rootbeer]

I thought the pedant's meeting wasn't until tommorow?

You mean "pedants' meeting."

Re:To be literal

[Bert64]

IBM are selling their chips to non-console markets too.
The console market provides the economy of scale, they can produce millions of chips for the console markets and sell them for a minimal profit, and then produce thousands of chips for more lucrative markets (the chips still cost the same to produce) and sell them at a huge markup.
Plus, by producing chips for console makers, these aforementioned console makers have paid for a huge chunk of the research and upfront tooling costs which will hugely benefit IBM when they go to produce chips for other markets.

Re:To be literal

[Klintus Fang]

true. but nonetheless, a manufacturing company only has a finite amount of production capacity. there is a limit to how much any single company can produce. IBM in particular has frequently had problems delivering enough chips on time to their volume customers. It is the primary reason, for example, that Apple abandoned IBM's power PC architecture and moved to Intel chips. There were multiple times when Apple was unable to meet peak demand for their products at critical moments because IBM was unable to supply the chips at the appropriate time back when apple was relying on IBM to manufacture its CPUs. I'm not therefore understanding how IBM benefits from the economy of scale argument. They haven't increased their production capacity. And with them now supplying 3 different console's simultaneously I'm a bit baffled how they are going to keep up with demand unless other companies start manufacturing the chips for them (maybe they already are. I haven't checked.) You may be right though that IBM somehow got Sony and others to pony up a significant portion of the research costs for the cell processor.

Cute-A love connection?

[Anonymous Coward]

"In the meantime, my PS2, GameCube, and PC will "hold" me in terms of gaming."

Would you like a quiet moment alone?

Re:Mod parent redundant

[diersing]

Replying to yourself? Give me back the last couple seconds of my life, you stealer of time!

Money hats?!

[__aaclcg7560]

...is busily crafting money hats for everyone involved.

They're not in the tinfoil hat business anymore?

Re:Money hats?!

[mgabrys_sf]

I believe it refers to a Penny Arcade strip:

http://www.penny-arcade.com/comic/2000/10/23

What about if Sony botches the PS3?

[UbuntuDupe]

If the PS3 does badly enough because of Sony's blunders, couldn't that take down IBM's reputation? I'm sure someone can point out how IBM's contribution to the PS3 product has nothing to do with any PS3 hardware issues that come up, but still, they could take a lot of the blame for Sony's problems, even if such accusations have no merit, right?

Re:What about if Sony botches the PS3?

[cmdrpaddy]

Hardly. Anyone that knows IBM made the chips will probably already be aware that it was Sony that screwed up, not IBM. Anyone else who knows that Sony screwed up more than likely wont know that IBM made the chips in the first place.

Re:What about if Sony botches the PS3?

[mrvis]

If the PS3 does poorly enough, then either the 360 or the Wii will be a smashing success.

Someone will look good at the end of it. And then IBM can say they helped.

Re:What about if Sony botches the PS3?

[TJ_Phazerhacki]

Seems to me that the work done on the fundamental archetecture dosent rely on the videogame aspect to prove success or failure - it's a radical departure in parallel processing, and will lead to inevitable advances across the computing front - literally from cellphones to supercomputers.

And no, I don't drink the Kool-aide. I'm just glad that Sony only has a part of the control over the chip - otherwise licensing the tech would be astronomically expensive, and no one would even bother looking.

Re:What about if Sony botches the PS3?

[tilandal]

IBM SOnt and Toshiba Co-designed the Cell processor. IBM for its part is already getting good use out of it in thier supercomputing ventures. http://news.com.com/IBM+to+build+Opteron-Cell+hybr id+supercomputer/2100-1010_3-6112439.html I have alwys thought that sony got screwed with the cell. It was clearly designed for supercomputing tasks in mind which is why it has such high performance but such poor branch prediction. Sony could ahve gotten a faster processor for less money by going with a more conventional architecture but, as usual, they are trying to reinvent the wheel.

The real losers are the gamers...

[Channard]

.. because both Sony and Microsoft have pulled off the coup of charging even more for 'next gen' games. When Microsoft started charging fifty quid for games - including their launch titles that were conversion of X-Box 1 games - I knew Sony would follow suit. And they have. There's yet to be any real justification of cranking up prices like this.

Re:The real losers are the gamers...

[Kirin Fenrir]

Growing game budgets have been to blame for this. Final Fantasy XII, for example consumed $35 million in production costs.
Now, not all titles use that much, but $20-$30 million dollar game budgets are not uncommon anymore.

Old news

[Zantetsuken]

Sorry, but isn't this old news - like 2004 or 2005 old news around when the Cell was first announced as a Sony/IBM/Whoever else partnership?

Re:Old news

[Neoncow]

Not only that, it gets brought up in every slashdot article about the next gen consoles profit. It usually gets modded insightful everytime. Except when its redundant. ;)
http://games.slashdot.org/comments.pl?sid=206534&c id=16841022

Apple.

[CDPatten]

Anyone else notice Apple leaving IBM hasn't made a blip in their profits? They really haven't skipped a beat.

In fact, since Apple went to intel chips, it almost seems like IBM has been able to expand and focus on other chips projects like the gaming systems. It seems like getting rid of Apple was a pretty good thing for them.

PS
go ahead I'm ready... let the Apple loving flaming begin.

Re:Apple.

[pilkul]

Speaking of which, I've always been confused as to why Apple decided it could get better performance with Intel instead of IBM, whereas Microsoft at the same moment made the exact opposite switch with the Xbox. What the heck is going on here? Anyone know a good reason?

Re:Apple.

[Amouth]

i agree.. IBM doesn't seem to give a crap about power consumption on their designs.. they want speed and effeciency - Apple wanted lower power consumption IBM couldn't deliver and waisted time trying. and some unknown sales rep at Intel got lucky

Re:Apple.

[Anonymous Coward]

Apple wanted pricing and performance as if they were going to sell as many units as MS/Sony/Nintendo, when they sell just a fraction of that. Apple wanted IBM to tweak the designs to their liking, power, performance, etc., and to do it on the PC market time table. Problem is, if you're IBM, and you have the game consoles in one hand, and a customer like Apple in the other, who do you choose? IBM made the obvious choice, make money.

Re:Apple.

[Wesley Felter]

Performance for games and performance for media apps are not the same thing. And performance is not the only consideration for a console. There are rumors that MS wanted to own their chip designs, which was not an option for Intel processors. Also consider power, cost, customizability, etc.

Re:Apple.

[filesiteguy]

I don't think your comment should elicit any pro or anti macintosh rants. Apple's requests for chips from IBM were a very small part of their overall business.

In fact, IIRC, the IBM folks were more than happy to be rid of the Apple peeps, because they were so picky about their designs. IBM decided it would be better to have other customers.

Re:Apple.

[Anonymous Coward]

Hardly the case. Apple switched away from IBM BECAUSE they weren't a noticable ammount of their profits. Apple had no say in dictating the chip progression and their line of laptops was getting killed because of it.

Re:Apple.

[stevesliva]

Speaking of which, I've always been confused as to why Apple decided it could get better performance with Intel instead of IBM, whereas Microsoft at the same moment made the exact opposite switch with the Xbox. What the heck is going on here? Anyone know a good reason?

For the lifetime of a console, you want every box to have a processor running at the same spec and for the price to decline as the years go by. Intel, on the other hand, would like to offer you a faster processor at the same price. For the 360, owning the hardware designs for Microsoft was an absolute imperative, because they found that they could not sufficiently drive down the price of the chips used in the original XBox console, unlike the PS2 and Sony, which saw the chips shrunken and merged and driven down in price.

That, and the fact that they didn't want people turning their subsidized game hardware into super-cheap multicore PCs.

Re:Apple.

[ravyne]

There are plenty of good reasons. On the Apple side: Firstly, much of the reason that Apples machines were comparably expensive for so many years was that they had to do alot of design work on their own. Motherboards, Chipsets, etc. Intel provides them with all those things now as a package deal. Secondly, it helps to open up a wider spectrum of parts suppliers, there's nothing ruling out an AMD-based Mac if AMD can provide a compelling offer, for instance. Most importantly, was the future roadmap that IBM is planning for PPC; namely, the lack of laptop and desktop centric chips. When Apple went to IBM for the G5, they basically had to offer enough business to IBM to make it worth their while in modifying the Power4 architecture to be suitible for the desktop. Frankly, Apple didn't sell enough G5s for IBM to bother working with them going forward when they could allocate the same resources to make more money in other sectors by concentraiting on their embedded, server, and client-customized Power chips. On the Microsoft Side: Firstly, Microsoft decided that IBM could provide them the best bang for their buck. The fact that IBM's offer was PPC architecture was of little consequence. Because they were building the whole console, they could simply build the other components to order around whatever CPU they ended up with. The primary concern with consoles is being able to reduce the cost of components over time so that the hardware is profitable, or at least breaks even, before it's run is over. Mostly, the key here is to keep the die size small. An x86 design likely wouldn't have given the same performance / die size. The most important aspect of the IBM deal, though, was the fact that Microsoft essentially "owns" the Xenon CPU design for future use with respect to the xbox console. This means that they can take the design to other fabs if they can do it cheaper than IBM, or that they can integrate the CPU into silicon for the next system to help with backwards compatibility for instance (of course they'll still likely have to pay IBM an aditional liscense fee/royalties for new products.) The x86 companies hang on very tightly to their liscenses, and I dare say that it might have costed more to liscense x86 than to develop Xenon with IBM. That said, Microsoft did look at the possibility of an x86 360 using both AMD and intel parts. The also looked at integrating an x86 into the PPC-based 360 as a secondary processor for backwards compatibility purposes. A design built around a lowish-speed (1.8-2.0 ghz) Core Duo, or Core 2 Duo would have been nice, but I don't think that Intel would match IBM's price (I've heard ~100 USD, give or take) and they certainly wouldn't have liscensed the design to microsoft or allowed non-intel fabs to produce it.

Re:Apple.

[Kjella]

Apple looked at the future plans for Core processors, dual cores, quad cores etc., Microsoft looked at what they could get in time for a launch which means Core probably wasn't ready. Wii was probably a cost issue (both can deliver more than enough power), and the PS3... Sony always does their own thing, like hell if they could use a commodity x86 processor...

Re:Apple.

[SysKoll]

Pikul,

The reason is that IBM was making most of its PowerPC business on either powerful, server-level processors or on low-power embedded cores (often with only a subset of the PowerPC functionalities). Apple wanted a fast laptop chipset, which meant adding complex laptop-style power management circuiterey to a server-style chip, with probably a different fabrication process to boot.

There was no way to justify that much engineering cost for the meager volume that Apple was going to buy. Yes, Apple ships a lot of laptops, but compared to other lines of business, it's still a small volume. IBM couldn't develop these chips without charging Apple much more per unit. So Apple went to Intel for their high-volume, low-cost laptop chipset, for which engineering cost is recouped on tens of millions of units.

Meanwhile, MS, Sony and Nintendo needed an embeddable core with a strong graphics and signal processing capability, and they found that IBM was able to customize a PowerPC chip to suit their needs (and note that battery life is not a factor here: a 100-watt chipset is OK for a console).

That's all there is to it.

Re:Apple.

[SysKoll]

Yup. Back when I was (briefly) working at a fab makind Motorola MC68000 processor under license, we got a visit from Apple buyers. The price they demanded was ridiculous, and was lower than the fab's break-even point. So the factory had to refuse to deal with Apple, and the sales people there were bitter about Apple's attitude.

So Apple was a bitchy customer back then, and source at IBM tell me they were very demanding with Big Blue, too.

Re:Apple.

[Fengpost]

Good points. Another point is by using PPC architecture they are trying to prevent people buying the console and hack it then use it as a Windows PC. It was a question Bill Gates asked when they present the product to him. I am sure the 360 will be hacked eventually, but it would be a lot harder than the original XBox. What is better is that it will run Linux. Thi sarticle is interesting: http://www.edn.com/index.asp?layout=article&articl eid=CA6328378&partner=eb&pubdate=5%2F1%2F2006

Re:Apple.

[mgblst]

Simple, IBM don't really focus on low power chips, but Intel do. For Intel, it is all about the laptops. For IBM, it is about power, CPU power.

The world is going laptops crazy, and Apple knows it.

Re:Apple.

[fatphil]

iBook chips typically came from Freescale Semiconductor, also part of the Power consortium, part of Motorola historically. Freescale too have papered over the crack that Apple left quite easily.

FatPhil

...and the loser is Apple

[Andy_R]

Well at least it makes a change from hearing "We're not going to port our games to your PPC architecture". Now the games industry will be saying "We're too busy writing for PPC chips to port to your x86 architecture".

Yes, you said it... just like everyone else

[norminator]

I think there's already been more than one headline on Slashdot previously and on digg that says almost exactly the same thing... IBM is the real winner. But it's not like it's a big story... if it is, then who's the loser? Intel? AMD? Do they really care that they aren't in the consoles? Not as far as I've heard. They're more worried about chasing the living room PC. (Even though I think they'd get into more living rooms with consoles, but I guess it's more work to design a new console processor than it is to make up a silly meaningless standard for "media" PCs... let the marketing staff do the work, instead of paying engineers to make a product.)

Re:Yes, you said it... just like everyone else

[Grave]

Uh, AMD is in a console. They now own ATI, who produced the chip for the 360 (and originally for the GameCube as well).

Skin in the Game

[Anonymous Coward]

Don't bet on a big payoff in other areas of embedded devices right away. The videogame console makers may have been on cash & carry terms with IBM, but business with rental or monthly-recurring-charge revenue don't work that way.

Cable companies and phone carriers demand "skin in the game." You don't get paid until your doodad turns a profit. They call their suppliers partners but in fact the suppliers are subsudizing carrier R&D with essentially an interest-free loan.

IBM did a similar thing with R&D on the game CPUs, but got paid per unit as they were deliverd. Imagine not getting paid until the XBOX360 breaks even and you have a better idea how some of these other target industries treat suppliers.

should make a console

[master_kaos]

since IBM is making all the chips, they should use all the information they gained from R&D and develop their own console... Although I guess they would have to deal with all the lawsuits

Reducing porting time.

[Ayanami Rei]

No, I'm not kidding. It encourages ports of games developed for other next-gen platforms to the XBox 360, and it gives developers a warm fuzzy to aim for the 360 as their baseline target, and then tweak it to run on the Cell and/or Dolphin platforms.

If we want to talk about "who are the winners here?", I'd have to say it's the developers!

Re:Reducing porting time.

[Anonymous Coward]

My job is porting videogames, and I can tell you that's not the reason. Despite all having IBM CPUs, there are still vast differences between the three consoles. CPU Instruction sets and endianness are among the least of our concerns.

Another way in which you're wrong is that console makers, as opposed to game developers, have little interest in making portability easier, since that would reduce their number of exclusives.

As the new Open Source God

[Anonymous Coward]

IBM will no doubt be releasing all of the technical data on these chips under the GPL any day now.

Deep Blue

[Anonymous Coward]

IBM is sitting on 3 million console cases for Deep Blue ... they are about a year away from a $179 retail price point on the Chess-playing, number crunching game machine. (Floating point not necessary)