June 20, 2003 5:22 PM PDT

Reports wrong on Xbox successor

A Japanese newspaper on Friday retracted statements attributed to Microsoft CEO Steve Ballmer regarding a new version of the Xbox.

Nihon Keizai Shimbun reported Friday that Microsoft CEO Steve Ballmer, speaking during a press event, said a next-generation version of the Xbox video game console would arrive in 2006, later than many industry figures had expected.

The newspaper later said the statement was incorrectly attributed to Ballmer and instead was meant to reflect general expectations by industry analysts on the timing of next-generation video game consoles. The year was also listed incorrectly, the newspaper said--analysts expect new consoles will hit the market in 2005.

Game consoles typically run on a five-year life cycle, which means market leader Sony would be due to replace its PlayStation 2 in 2005.

But Sony executives, while refusing to make any commitments for a PS2 successor, have indicated that the Cell processor expected to power the PlayStation 3 is taking longer to develop than expected. Sony also recently announced an interim update to the PS2, the PSX home-entertainment appliance, that should add some new life to the brand, according to Peter Glaskowsky, editor in chief of industry newsletter Microprocessor Report.

"PSX is intended to gain them some time," Glaskowsky said, adding that a version of the PS2 that supports high-definition TV sets is also likely. "They have a lot of products they can introduce between now and the PS3."

Speculation on the arrival of next-generation consoles had been particularly brisk recently, including signs that Microsoft may switch suppliers for the most expensive part of the Xbox, the graphics processor. Nvidia supplies the graphics chip for the current Xbox, but rival ATI Technologies has said it would like to participate in the next generation.

Michael McConnell, an analyst for Pacific Crest Securities, said ATI is likely to win, due partly to lack of interest from Nvidia, which endured months of messy contract arbitration and inventory headaches last year because of the Microsoft contract.

"Nvidia has really given a lot of signals...that they're trying to distance themselves from Xbox2," McConnell said. "That relationship has really soured over the last year...Microsoft in general is just not a very nice partner to deal with. I think the whole experience left Nvidia with a bad taste in their mouth."

ATI will probably be more flexible than Nvidia, McConnell said, but the graphics-chip underdog is still likely to insist on a contract that shields it from Nvidia's experiences, when lagging Xbox sales and a sudden change in the console's configuration left the chipmaker with piles of unsold and unusable merchandise.

"They'll probably have a royalty arrangement, where they don't have some of the inventory risks," McConnell said.

Glaskowsky said Nvida and ATI have an equal chance of getting the deal for the next Xbox, as both will draw from Nvidia's experiences and insist on similar contract terms.

"Microsoft is going to have to make sure that whoever they partner with is going to be happy with the deal," Glaskowsky said.

Glaskowsky added that the Xbox experience hasn't been entirely negative for Nvidia. The design of the Xbox chip was the foundation for nForce, Nvidia's foray into chipsets, PC components that combine graphics with control of basic PC functions.

"Nvidia wouldn't have the nForce products if it wasn't for the Xbox," Glaskowsky said.

 

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