Report: Microsoft to become chip company with Xbox

Nov 10 2003 (13:00 PM)

LONDON — Rather than take standard chips from suppliers for its next Xbox, Microsoft Corp. is planning to license intellectual property from suppliers and actively participate in the design of chips that would be forwarded to foundries, according to a report by CNET.

The report said the approach would allow Microsoft to better optimize its game console, address hacking problems and potentially sell chips or derivatives for other applications.

Microsoft would become a fabless chip company with itself as the primary customer, the report said. Xbox Next is not due to appear until 2005. Previously, expectations had been raised that the next-generation Xbox would appear in time for the 2004 holiday season.

Microsoft is licensing graphics technology from ATI Technologies, processor technology from IBM Corp. and chip set technology from Silicon Integrated Systems (SIS). Microsoft will then work with its partners to create a set of custom chips, the report quoted unnamed sources as saying.

IBM's design win for the next Xbox, displacing Intel in the current game platform, was disclosed last week, although there was no discussion in the announcement about whether there was a chip component design win or a technology licensing deal.

The Xbox arrangement would mirror Sony's relationship with IBM and Toshiba to create the so called Cell processor for its Playstation game hardware, the report said. Sony is also seeking wider sales opportunities for the Cell processor.

Microsoft is expected to follow up its intellectual property licensing deals with foundry contracts. "Manufacturing is not part of the agreement yet. It is up to them what they do with manufacturing," the report quotes an IBM representative as saying.