Why Microsoft buying AMD would be a bad idea

Microsoft is rumored to be interested in picking up beleaguered chipmaker AMD, with takeover talks reportedly started a few months ago.

While there's nothing concrete from either company, the idea behind the rumor is that Microsoft is concerned about AMD's financial state, and is worried that any problems with the chipmaker would affect supplies of the Xbox One. So Microsoft whips out its checkbook, buys AMD, and all the problems are solved.

But there are a few other deal sweeteners.

There's the chip supply chain for the Xbox One. Microsoft and Sony (which also gets its chips for the PS4 from AMD) pay around $100 for each SoC (System-on-a-Chip) bundled inside their games console. Microsoft has sold some 12.6 million consoles, which means that it's paid AMD some $1.2 billion since 2013. Factor in that AMD is making a 20 percent profit on each chip, and Microsoft could save around a billion dollars a year if it bought the cow.

Now factor Sony into the equation. Sony has sold some 24 million PS4 units, which is a lot more units that Microsoft has managed to shift. If Microsoft grabbed AMD it could get paid for each console its competitor sold.

Finally, there are Microsoft's HoloLens virtual reality ambitions. Wouldn't owning a chipmaker make coming out with cool new hardware a lot easier?

Sounds like a done deal, right?

Not so fast there. There are a lot of issues, and the biggest being that AMD is a company that's made up of two parts. There's the Computing & Graphics part that's hemorrhaging money, and the Enterprise, Embedded, and Semi-Custom bit that's doing better, but even that's not something to write home about.

If Microsoft really wants AMD, it's going to have to take the bad as well as the not so bad. And all this just to horn in on games console SoC sales.

Seems like a lot of hassle.

Then there's Intel. A big part of what gives AMD the clout it has in the chip industry is the x86 architecture, and this is bound up in technology exchange agreements with Intel. It seems highly unlikely that Intel would want Microsoft as a competitor, which would put a stake through the heart of any deal.

Then there's the inevitable interest from the Department of Justice over such an acquisition.

Doesn't sound like such a done deal anymore, does it?

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