Nvidia chief executive Jen Hsun Huang said recently that there are three main chips for the Xbox: the microprocessor, the graphics processor and an unannounced third chip Nvidia will provide, possibly handling advanced sound or video functions.
"Nvidia is developing two of the devices," Huang said during a presentation at the Robertson Stephens Semiconductor Conference in San Francisco last week. Intel's Pentium III has already been chosen as the microprocessor.
Microsoft would not comment on the mystery chip. The Xbox, slated to arrive next fall, offers game playing, Internet access and a DVD drive. Analysts said there are several possibilities for what Nvidia's other chip might do.
Microsoft has already listed a "custom 3D audio processor" in its list of specifications for the console.
If Nvidia were doing the audio, it would be a whole new area for the company and something it might not want to advertise to the industry. Analyst Peter Glaskowsky of MicroDesign Resources said it's within the company's ability level.
"It's supposed to require a whole lot of math," Glaskowsky said of the audio chip. "Nvidia certainly has a whole lot of know-how to do that."
Nvidia also is doing the core logic for the Xbox--the technology that allows the Pentium III microprocessor to talk to the graphics chip and other components--although Huang indicated that the unknown chip goes beyond that function. The chip might provide additional power for video processing, Glaskowsky hypothesized.
In March, Nvidia and Microsoft inked a deal giving Nvidia a $200 million advance on its graphics chip work, according to documents filed with the Securities and Exchange Commission. Nvidia, however, makes no mention in the filing of any other work it is doing. Nvidia beat out graphics start-up Gigapixel for the contract. Gigapixel subsequently was sold to 3dfx Interactive.
The Xbox could prove to be a massive windfall for the graphics company, which is challenging ATI Technologies for leadership in that industry. ATI has held the top spot, in terms of market share, for the past few years.
Recently, though, ATI has been saddled with problems. The company's CFO resigned, and it reported greater than expected losses in its most recent quarter. By contrast, Nvidia has been boosted by new contracts and positive reviews for its latest products.
Nvidia could see $45 per unit in sales for the Xbox, Huang said, which is more than most graphics companies make from the chips that go into PCs. The Xbox could represent a $5 billion opportunity for company, he said, if Microsoft manages to meet optimistic projections for sales of more than 100 million units. Sony's PlayStation has sold more than 75 million units so far.
Microsoft said last week that it plans to spend $500 million to launch the Xbox.
What is clear is that Nvidia is getting a lot of on-the-job training with the Xbox. The company plans in the next year to introduce its own PC product integrating core logic and graphics processing functions, Huang said. The company had previously done so only in partnerships with other companies.
"Nvidia will be able to enter the (integrated graphics and core logic) market segment without having to incur the costs of major development or retooling," said analyst Jon Peddie, president of Jon Peddie Associates, a Mill Valley, Calif.-based consulting group
Though combined offerings usually offer lower graphics performance than standalone products, more PCs are being sold with integrated graphics because of the cost savings. Both Intel and Via Technologies, among others, sell chipsets with integrated graphics.
"They're going to take over more and more of the markets as we get better semiconductor technology," Peddie said.
Huang also reiterated Nvidia's aim to go after the Macintosh and mobile markets, saying both are priorities, but not giving a time frame for entry to the Mac world.
"We're really excited about the Mac market," Huang said.
The graphics market has been consolidating rapidly, with five companies shifting away from the market this year.