Nvidia Corp. confirmed last week that it will not supply the graphics processor for the next-generation Microsoft Xbox, which instead will feature a graphics engine designed by Nvidia rival ATI Technologies Inc.
Microsoft Corp., though declining to comment on its relationship with Nvidia, issued a statement last week that ATI, Markham, Ontario, would provide custom graphics technology for use in systems and services powering the Xbox 2.
"We're combining Microsoft's vision, software experience, and R&D resources with ATI's pioneering leadership in graphics technologies," said Robbie Bach, senior vice president of the Home and Entertainment Division at Microsoft, in the statement. "We selected ATI after reviewing the top graphics technologies in development and determining that ATI's technical vision fits perfectly with the future direction of Xbox."
The deal is something of a surprise given that Nvidia, Santa Clara, Calif., has provided the graphics processor for the Xbox since Microsoft first entered the gaming market as an OEM several years ago. However, the partnership has not always been a harmonious one. The companies in February emerged from arbitration after resolving a pricing dispute related to Nvidia's Xbox graphics processor and audio and networking chipset, and Nvidia has been less than pleased with sales of the Xbox since its launch nearly two years ago, according to analysts.
Still, Nvidia said it was disappointed to have lost a chance to support the Xbox 2, which is expected to be released in 2005 or 2006. "As far as our own business and desires are concerned, we don't like losing design wins," said a spokesman, who noted that Nvidia will continue to supply the original Xbox and work with Microsoft to develop drivers, the DirectX API, and the Microsoft Media Center PC platform.
ATI Technologies did not return calls seeking comment. A spokeswoman for Microsoft, Redmond, Wash., declined to detail the kinds of services or products that ATI would provide under the new agreement.
However, Jon Peddie of Jon Peddie Research, Tiburon, Calif., said the new relationship may look a lot different. Peddie suggested that, rather than buy graphics chips outright from ATI, Microsoft will likely license IP and then have the devices built by a foundry in order to compete more effectively with Nintendo and Sony, which operate under a similar arrangement.