There"s a multibillion dollar company moving into the chip business: Microsoft.
According to sources, the Redmond, Wash.-based software giant will more actively participate in the design of the brains for the next version of its Xbox gaming console, tentatively called Xbox Next. By switching from using relatively standard parts to more customized silicon, the company can better optimize its game console, due in 2005. At the same time, the move potentially gives the company a toehold in a completely new market. "It is clear that Microsoft wants to get a lot of their DNA into it," said Richard Doherty, director of research company The Envisioneering Group. One reason for that involves hacking incidents. "They sure don"t want to have a situation where an Xbox can be turned into a PC," Doherty said. Another is that Microsoft can squeeze better performance out of chips by being involved on the front end of the design process.
For the original Xbox, Intel and Nvidia sold chips to Microsoft that were largely identical to semiconductors the two chipmakers have also sold to the general PC market. With Xbox Next, Microsoft is licensing graphics technology from ATI Technologies, processor technology from IBM and chipset technology from Silicon Integrated Systems (SIS). Microsoft will then work with these companies to fashion customized chips, sources said. The arrangement will likely mirror Sony"s relationship with IBM and Toshiba to create the Cell processor slated for use in the next big release of the PlayStation game console, said analysts and sources close to the companies.