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AMD, Nvidia chips said to power Microsoft game box

Graphics chip maker Nvidia and processor maker AMD will likely be the chips inside Microsoft's new game console, which chairman Bill Gates will soon demonstrate.

Graphics chip maker Nvidia and processor maker AMD likely will be the chips inside a game console prototype Microsoft soon will unveil, although questions remain over what will make this system different from a PC.

Microsoft chairman Bill Gates is scheduled to talk about the console, code-named the "Xbox", at an event in San Jose, Calif., on Friday. The Xbox will compete against Sony's PlayStation 2, which was released in Tokyo last weekend. Due in late 2001, the Xbox essentially will let consumers play games and, in all probability, provide simplified ways to browse the Internet or receive email, just like the latest PlayStation.

Various sources have said that a prototype Gates will show off at the Game Developer's Conference will likely contain a graphics chip from Nvidia, which supplies graphics chips to a number of performance PC makers, and an Athlon processor from AMD.

Although the boxes that eventually hit the shelves may contain chips from a variety of producers, being included in the prototype gives some momentum to these companies. Computer makers that decide to make the box could circumvent much of the design cycle by merely adopting Microsoft's blueprints.

"I think that they (Nvidia) will be it. They are the one," said Hans Mosesmann, an analyst at Prudential Securities. Nvidia's stock had risen more than 42 percent, to close at $83.31 at the end of regular trading today.

AMD, meanwhile, may be in a position next year to provide low-cost Athlons for the Microsoft box, Mosemann added. AMD rose to an all-time high of $53.25 today, following the release of a 1-GHz Athlon yesterday.

Microsoft's decision to rely on chip technology from two established PC companies, however, once again raises questions about how different the Xbox will be from the PC.

From a hardware perspective, analysts are in nearly universal agreement: There won't be much difference. The Xbox will largely look and function like a PC.

Instead, Microsoft likely will develop a new operating system, but this presents another dilemma. On one hand, Microsoft ideally wants the Xbox to provide a different experience. On the other hand, it wants it to be compatible with PC software.

In the end, this will probably result in an OS that looks different, but doesn't radically rewire underlying functionality, said Peter Glaskowsky, an analyst with MicroDesign Resources. How attractive an experience this will present, especially compared against the realism Sony has achieved with the PlayStation 2, remains to be seen.

If anything, don't expect Microsoft to push Windows CE, he added. The company tried to promote Windows CE as an OS on Sega's Dreamcast, but the effort floundered, Glaskowsky, among others, noted.

Prudential's Mosesmann also predicted that Microsoft would come up with a hybrid OS. "Windows CE is too weak and Windows 98 is overkill," he said.

Another challenge facing the Xbox lies in encouraging computer makers to build them. Game consoles and Internet devices generally sell for less than the cost to produce them. Manufacturers make up the difference by selling software and/or services.

"The magic in the game market is in the business model, not the technology," noted Dean McCarron, principal analyst at Mercury Research. "There is no way the game consoles could sell for the same price today without subsidies."

Subsidies are nothing new to Microsoft. The company subsidizes the cost of WebTV boxes. In that case, however, Microsoft recoups the up-front cost through monthly service fees. In the game market, Sony and other console makers garner their profits from selling game CDs or cartridges.

The open question is what combination of secondary products and services Microsoft eventually will use for the Xbox.