What's Microsoft's Game?

Microsoft is a software company, but it does more hardware design than many hardware companies do. Microsoft recently made several key announcements related to the second generation of its Xbox videogame console, and these announcements make it clear the company is taking an entirely new approach to creating the new system. Today's Xbox is much like a standard x86 PC; its components were state of the art when Xbox shipped, but today they're simple commodities.

The next Xbox—reportedly to be called Xbox Next—will combine graphics technology from ATI with core logic from SiS to replace the integrated-graphics chip set designed by Nvidia for the original Xbox. Neither of the new partners will provide actual chips; Microsoft will use ATI and SiS circuit designs in new custom ASICs.

The processor picture for the new machine is less clear. Microsoft has licensed PowerPC processor technology from IBM for the new Xbox, but no further information has been released. The particular core could be IBM's PowerPC 970, the PowerPC 440 used in high-end embedded systems, or some unannounced design. It's even possible Microsoft will use more than one PowerPC core, but the company hasn't said.

Microsoft also declined to specify whether the selected core will be the only general-purpose processor in the system. Without an x86 processor, maintaining software compatibility with the original Xbox will be more difficult. Microsoft gained in-house emulation technology through its acquisition of Connectix earlier this year, but emulating a 733MHz Pentium III with sufficient reliability to host performance-intensive videogames would require a far more powerful RISC chip—probably at least a 3GHz device. Multiple slower cores would not work.

To solve this problem, Microsoft could add another processor core, an x86 design licensed from AMD, Intel, or VIA. Xbox currently has a programmable graphics core and an audio DSP coprocessor; Microsoft could presumably adopt a more-complex heterogeneous multiprocessing configuration for the next-generation system. There's no hint of such a strategy from Microsoft, however appealing it may be. Such a multicore design could enable the concurrency needed to use Xbox Next as a digital video recorder or home multimedia gateway.

Integrating processors, core logic, graphics, and peripherals to create an all-new videogame platform is no easy task, no matter how mature the individual cores Microsoft has licensed. To make Xbox Next competitive against Sony's forthcoming PlayStation 3, Microsoft will need three or four complex chips, totaling several hundred million transistors. A project of this magnitude could keep a large design team busy for years. Microsoft's deal with IBM could be tied to IBM's expertise in custom SoC designs, but we don't know how much of the design work for the new Xbox—if any—could be handled by IBM.

The company's investment in new Xbox hardware could approach half a billion dollars, and that figure doesn't include software development or marketing expenses. I don't know if Nintendo can afford to match this kind of spending. Sega dropped out of the console competition when Microsoft joined; will Nintendo be the next to give up on hardware to focus on game development?

In creating Xbox Next, Microsoft will gain considerable skills and experience in system-on-chip design. Although it's unlikely the company would offer chips to the merchant market, Microsoft would effectively become a fabless semiconductor company. These skills could allow Microsoft to pursue other markets, where it has previously relied on external design firms. Microsoft may not need to partner with other companies to pursue markets such as set-top boxes and cellphones, where systems are generally sold through service providers rather than at retail. If Microsoft doesn't need retail-focused OEMs to sell its designs—as it does in the PC and PDA markets—it may choose to cut out the middlemen and boost its profits. Microsoft could be a fearsome competitor for many companies that today are its partners.