Microsoft and AMD announce multi-year Xbox chip deal

Microsoft (MSFT) and AMD (AMD) on Tuesday announced that they’re partnering up to develop custom chips for the next-generation of Xbox systems ranging from in-home to handheld consoles.

In a statement, Xbox president Sarah Bond said the arrangement will allow game developers “to unlock a deeper level of visual quality and immersive gameplay and player experiences enhanced with the power of AI, all while maintaining compatibility with your existing library of Xbox games.”

Last week, the company debuted a new line of handheld consoles alongside device manufacturer ASUS called the Xbox Ally and Xbox Ally X. The systems, available later this fall, will allow users to access their Xbox library on the go while offering the ability to stream games via the cloud.

The moves line up with Microsoft’s effort to expand its Xbox portfolio well beyond its traditional home console in an effort to build out its Game Pass subscription and cloud gaming service.

Part of that strategy included buying some of the biggest gaming developers and publishers in the industry, such as its $7.5 billion acquisition of ZeniMax in 2021. The company has also released a number of its games on rival platforms including Sony’s (SONY) PlayStation.

Microsoft’s Game Pass, which costs between $9.99 to $19.99 depending on features, is the company’s gaming store front and online gaming service.

To further entice users, the company says its working to bring third-party stores to its devices starting with its Ally handhelds.

AMD worked with both Microsoft and Sony on the chips for their current generation of consoles. Rival Nvidia teamed with Nintendo for both its Switch and Switch 2 handhelds.

Microsoft’s gaming business falls under the company’s More Personal Computing segment. During Q3, the division brought in $13.37 billion in revenue. Xbox gaming and content services grew 8% year-over-year.