Just read the following article* that speculates that AMD will no longer license their chip technology for new consoles to manufacturers but will instead sell the chips (APU or GPU) directly to them.  

And so I was wondering what everybody thought of AMD's speculated new stand of selling their chips (APU for NextBox/Orbis and GPU for WiiU) vs. their previous licensing chips (GPU) on the Wii and Xbox360. 

The article below will explain it better.

Please read the article below and see if you can help with a few Questions Below.

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http://www.xbitlabs.com/news/multimedia/display/20130123225745_AMD_Expects_Game_Consoles_to_Account_for_20_of_Revenue_This_Year.html

"According to AMD, game consoles are an area of interest for the company; particularly, an area of interest for the embedded products group. Previously – in case of graphics technologies integrated into Microsoft Xbox 360, Nintendo Wii and Nintendo Wii U – game consoles were an area of interest of graphics products group. ATI Technologies and then AMD has never sold GPUs for game consoles, but received royalties for every single console and every game for the consoles that utilize its graphics tech (such royalty payments may account for $10 - $20 - $30 million a quarter, not hundreds of millions AMD wants to get from its embedded business). The royalties are recognized as a part of graphics products group revenue. Apparently, this is going to change.

When asked specifically about game consoles during the conference call, AMD’s Lisa Su, general manager of global business unit, who also oversees embedded business of the company, said that the firm had already received first payments for Nintendo Wii U and those were recognized as a part of graphics business revenue, but for some reasons also mentioned the embedded business unit and its revenue targets.

“On the gaming revenue, I think we talked about the Nintendo Wii U that was announced in the fourth quarter and that was part of the revenue that was reported in the graphics segment. In terms of going forward, what we said is the embedded in the semi-custom business will ramp over this period in 2013 and we are on track for that 20% revenue target by the fourth quarter,” said Ms. Su.

Based on the comments made by Lisa Su and the fact that the only viable game consoles scheduled to be unveiled this year are Microsoft Xbox Next, Sony PlayStation 4 “Orbis”, it looks like AMD will not license its graphics and processing technologies to platform owners, but will sell semi-custom accelerated processing units to them.

Chips Instead of Licenses

Based on unofficial information, both next-generation consoles from Microsoft and Sony will utilize system-on-chips with up to eight Jaguar x86 cores and custom Radeon HD graphics engines. Considering that due to x86 license agreements with Intel AMD may have no rights to license x86 designs to any third company and has to build-in third-party IP into x86-based SoCs itself, there may be reasons why AMD is going to sell chips to console developers and not license technologies.

From many points of view, selling embedded custom APUs to Sony and Microsoft has a lot of advantages for AMD since it will naturally get more profit by selling chips than by getting license fees. On the other hand, the profit margin of such eAPUs will likely be very low. Moreover, AMD will have to handle all the manufacturing and logistics issues, which may not be too comfortable for a company with limited resources.

AMD did not officially confirm design wins with Microsoft and Sony or the changes in its relationship with console platform owners."

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Did AMD get royalties on all Wii/X360 games since they used their GPU?  If so how much? 

Will they still get royalties if they sell chip components instead of licensing them?

How much more will AMD make selling vs. licensing (or vise versa)?  

How will licensing vs.selling effect the price of the consoles to the 3  manufacturers? (Sony/Nintendo/Microsoft)

Any other insights on the article?

So basically AMD's about to grow in size exponentially. A sure thing - these contracts with the console manufacturers. I.e. they're going to have to start manufacturing the CPUs and GPUs themselves - instead of simply licensing their designs out and receiving minor royalties - up to $120 million per year over the past few years. They've licensed out their designs to Gamecube, Wii, Wii U, and Xbox 360 in total.

This is good. AMD's going to become a major chip manufacturer - it's going to need investment money - not a problem given its contracts for Playstation 4 and Xbox 3. Apparently they can not license out Intel's x86-based CPUs - but they can sell them.

But more importantly for Sony - it means they do not have to invest $2 billion in factories to build the GPUs and CPUs - like it did with Playstation 3. That's why they sustained much losses. They certainly paid $1 billion for the Cell factory - and probably something like that for the GPU factory, which is similarly sized. Also - they did not have to pay $400 million to design the CPU - like they did with Cell. Thus - $2.4 billion immediately saved by Sony in this deal. Xbox 3 - something like that too.

It also means AMD's going to become one of the world's leading chip manufacturers. MIPS I believe is the leader right now.

Edit I'm not reading what Xbit is implying into AMD's words at all. I still think it's royalties.

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Well the reason for licensing is so AMD can't screw them over. See what Nvidia did to MS over the Xbox.

But I think these new chips as so complicated that AMD needs to be in charge of overseeing production? No one else has experience designing 32nm SOI chips.

In any case, AMD did this as a package deal: CPU, GPU and fabrication for X price. Their X price even with this was better than Intel's, IBM's, and so on. MS and Sony are not stupid. However AMD should make more money especially in the long-term, and don't expect console prices to come down as much. 

Overall it's not a big deal.

@Cyborg13B The GPUs for both last-gen consoles were always made at TSMC. And I'm pretty sure AMD will be making these at Globalfoundries, they don't own their own capacity.

so as a tech dummy, what does this mean?

Not much, if true it's just a financial arrangement change.

The big 'news' that I have known to be true for 1.5 years now is that AMD are making the CPU and GPU for both PS4 and 720.

ok so would AMD be making more money on this deal, and would it raise cost of consoles?

One advantage of the Cell though was that Sony co-owned the technology so the licensing/royalties would be reduced.  But the customized based on off the shelf components* from AMD definitely have their advantages.

*oxymoron

Sony did buy back the Japanese PS3 chip plant that produced the Cell from Toshiba in late 2010/early 2011. - source

They did get the plant back for a steal, would they need the Cell for PS4 backwards compatibility?

NEC also built a $761 million plant in Japan to facilitate the production of the Gamecube GPU.- source 

I think the same NEC plant was used for Wii GPU production as well since that GPU was very similar in design?  Don't have info as to which plants produce WiiU or X360 components.

It'll be interesting to see what key components stay fabricated in Japan Next-gen, especially for the Sony and Nintendo consoles.

Yes the Xbit article does seem to leap to conclusions/make assumptions, but at the same time was an interesting theory to read. It's likely there won't be a model change unless the part where it says AMD "may have no rights to license x86 designs to any third company" is true.   Royalties still make more sense for console makers because they would have more control with manufacturing and price.

Does anyone have any insight on how the royalty system currently works with chip makers (AMD,Nvidia,IBM) in relation to the consoles?  What's the gist of licensing scheme as it stands now?

The Xbit article also seems to imply that MS/Nintendo also pay a royalty to AMD for each game sold, isn't this false?

As I was saying before I wonder how true this claim is, moreover what does it really mean?  What exactly is in the x86 license agreement with Intel and what effect will it have here with regards to AMD's own CPU/APU chips and licensing to 3rd parties?

I remember they ended up in court.  It was a disaster for both parties, but especially MS.  The original Xbox would never be profitable.

So AMD will use GlobalFoundries to manufacture the chips... sorry but the GlobalFoundries can't manufacture that much of chips... even the GPU for Radeon is manufactured in TSMC because GlobalFoundries can't handle that much of chips.

So AMD will use TSMC + GlobalFoundries to manufacture the chips for Nextbox and Orbis? I think we will see serious supply issues every month with these consoles.

While that happened Sony have 2 or 3 factories paused because there is no chip to manufacture (the factories that manufacture Cell and RSX today).

I can't see that happen this gen... maybe next gen when GlobalFoundries grow and have the size to manufacture way way way more chips.

so console prices won't comedown to as far as maybe $149?