Microsoft plans to use IBM chips in future Xbox

Future Xbox gaming consoles released by Microsoft will use processor technology from IBM, the companies said Monday in what represents a significant design win for IBM over current Xbox chip provider Intel.

Microsoft and IBM did not release many details, but said that Microsoft has agreed to license IBM processor technology for future versions of the Xbox console, as well as services based around that console. An IBM spokesman declined to comment on a time frame for the new devices.

"Intel is still our current partner for the Xbox, but we haven't announced what role, if any, Intel will play in the future," a Microsoft spokesman said. He declined to comment further on Monday's announcement.

An Intel spokesman also declined to comment on the company's future plans for Xbox technology.

When the future Xbox console is released, IBM's chip technology will have been adopted by the three major gaming console vendors.

Sony Corp., Toshiba Corp. and IBM are working together on the Cell project, which is expected to provide the processing technology for the next generation of the Playstation console.

IBM also provides chip technology for Nintendo Co. Ltd.'s GameCube device, the IBM spokesman said.

"It's a major blow for the Intel architecture moving forward for gaming entertainment," said Richard Doherty, research director at The Envisioneering Group in Seaford, New York. Intel's revenue from Xbox chips was not substantial, relatively speaking, but the shift from Intel to IBM is a big loss politically, he said.

Companies that have traditionally focused on building PCs for corporate customers are shifting their attention to the world of consumer electronics, and the lack of Intel technology within the fast-growing market for gaming consoles leaves a gap in the company's drive to dominate the digital home, Doherty said.

But the Xbox chips that Intel supplied to Microsoft had a much lower margin than most of the company's products, said Kevin Krewell, senior editor of the Microprocessor Report in San Jose, California. Intel President and Chief Operating Officer Paul Otellini expressed disdain for low-margin products such as RFID (radio frequency identification) chips in a speech to attendees of a Forrester Research Inc. conference in Boston last week.

The Xbox uses a 733MHz Pentium III processor, which is fairly outdated technology as compared to Intel's current processors, Krewell said. Intel also has no historical link to the gaming console market, while it has announced plans to move into other areas of the digital home such as wireless media servers and smart displays, Krewell said.

In order to preserve backward compatibility with older Xbox games, Microsoft and IBM will have to either embed a chip based on the x86 instruction set into the next version of the Xbox, or use emulator technology, Krewell said.

IBM's chips are based on the PowerPC instruction set, which differs from the x86 instruction set used by most of Intel's processors. Game developers must tailor their code for the specific platform.

Microsoft could emulate x86 compatibility with software it acquired from Connectix Corp. earlier this year.

IBM recently filed plans with local authorities to expand its chip manufacturing facility in East Fishkill, New York, and will probably use some of that new capacity to make the chips for Microsoft, Doherty said. The IBM spokesman declined to comment on whether the company would manufacture chips for Microsoft.

IBM Microelectronics has stepped up its pursuit of chip manufacturing deals this year, Krewell said. The company has signed customers such as Nvidia Corp., Broadcom Corp., and Intersil Corp. this year.

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