Advanced Micro Devices still hasn’t confirmed anything yet, but the evidence is growing that it’s designing the processor behind Nintendo’s upcoming codenamed NX video game console, which is expected to launch in 2016.

We’re guessing that AMD will supply the main processor for the upcoming Nintendo machine. That’s not too much of a leap of faith, as AMD already supplies the chips for Wii U, Sony’s PlayStation 4, and Microsoft’s Xbox One. It’s an important chip project, as the processor is key to whether Nintendo’s next machine will be competitive and affordable. And for AMD, which has reported losses for a couple of quarters, it could be a safe haven for bruising competition with Intel.

Nintendo could make the leap from IBM’s PowerPC to x86-based (AMD and Intel) architecture. It would make sense for Nintendo to continue its relationship with AMD (which makes the graphics chip for the Wii U) and switch to use x86 architecture in its next-generation design, which Nintendo announced would be called the NX.

AMD classifies its game console chips as “semi-custom.” These “accelerated processing unit” (APU) chips combine a central processing unit (CPU) and graphics processing unit (GPU) on a single chip. Intel makes such chips as well, but AMD had an edge in the previous generation of consoles because it focused much more on the graphics side of the chip. AMD successfully sold custom versions of its APUs to Microsoft and Sony. AMD succeeded with the argument that it could cut out one chip from the system with its combo chip design.

Back in December, AMD chief financial officer Devinder Kumar spurred speculation when he said at an analyst conference that AMD had two semi-custom chip designs in the works. “I will say that one is x86 and the other is ARM, and at least one will be beyond gaming, right. … They [the customers] are going to announce it and then … you will find out that it is AMD’s APU that is being used in those products.”

And today, AMD chief executive Lisa Su said that AMD had won a third semi-custom chip design as well. She said that the promise of these chip designs is that they could yield products that, over their lifetime, could generate a billion dollars in sales.

But with the 2012-era Nintendo Wii U, IBM provides a PowerPC processor and AMD provides the graphics chip. With Nintendo, AMD would have to come up with an APU that handled both the CPU and GPU functions and be able to handle the PowerPC processing as well (in order to run older Nintendo games).

To create a backward-compatible console for Nintendo, AMD would have to enable a way for the new console to use software translation in order to run older Wii and Wii U games. Since a new APU from AMD would be much more powerful, that software translation seems like it would be easier to do with modern chip technology. Backward compatibility is thus a hurdle for AMD to overcome with Nintendo, but it is not an insurmountable one.

It takes a few years to produce a new game console. The system’s designers have to figure out their specifications and hire chip makers, and then those folk have to design and start manufacturing chips. All of that takes time. If Nintendo really wants to start selling the NX in late 2016, then it probably had to start the work on it in early 2014 or maybe even 2013. Intel could very well be in the running to do such a design based on x86 technology as well, but during 2013 and 2014, Intel gave no indication that it was interested in the game console chip market.

Meanwhile, AMD’s competition in the game console APU market has declined. IBM’s chip business has shrunk to the point where it sold off the division to Globalfoundries. If you were a game console maker, would you put your future in the hands of the PowerPC?

AMD is certainly motivated to invest more in game console chips, as Intel doesn’t really compete there because the margins are low. And Gartner predicts that PC shipments will fall about 4.5 percent in 2015.

In its most recent quarter, AMD noted how the semi-custom chip sales were making a difference on the financial front. That segment did reasonably well, up 13 percent from the previous quarter but down 8 percent from a year ago. Su said that the new semi-custom work was still confidential.

Patrick Moorhead, an analyst with Moor Insights & Strategy, said regarding AMD and Nintendo, “I think it’s a very high probability unless Nintendo goes Android where I would expect them to go with Nvidia.”

Nvidia has a Tegra processor for Android devices, and it is shippin its own set-top box for gaming and entertainment, the Nvidia Shield set-top box, with Nvidia’s own Tegra X1 processor.

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