NEWS - Thursday, August 22, 2002

Xbox Gets New Video Chip

SEATTLE/LOS ANGELES - A partner of software giant Microsoft Corp. on Wednesday unveiled a new video chip for the Xbox video game console in a move aimed at reducing the machine’s cost. Campbell, California-based Focus Enhancements Inc. said it has developed a new chip for the console, which made its debut in the United States last November, that processes video for television. "The chip going into the Xbox is designed to give Microsoft a competitive advantage," Tom Hamilton, the executive vice president of Focus, told Reuters. Xbox’s rivals in the lucrative video game player market are Sony Corp.’s Playstation 2 and Nintendo Co Ltd.’s GameCube. Hamilton said Focus’s chip is "several dollars cheaper" than what Microsoft is using now to convert video from the console’s graphics chip to a format suitable for TV sets. He also said the chip is planned for use on a new motherboard for the console, rather than the one Microsoft has been using. "It’s basically a cost-reduced board," Hamilton said. He said the new board, and Focus’s new chip, are all part of an effort on Microsoft’s part to reduce its hardware costs for the console, an effort that he said began last year, before the console had even reached the market. "We’re always looking at short- and long-term ways to reduce the cost of making the Xbox," a Microsoft spokeswoman said. In the United States, the Xbox and Playstation 2 both carry suggested retail prices of $199, while GameCube has a suggested retail price of $149.95 Financial analysts have speculated that Microsoft loses as much as $150 on each Xbox sold. Game console manufacturers typically take losses on the consoles in their first years of production and look to make the money back on volume sales of higher-margin games. Microsoft is currently in arbitration with Nvidia Corp., which makes the Xbox graphic chip, over the price it pays for the chips and Nvidia’s production schedule. Nvidia has said in filings with securities regulators it may have to produce the chips at a loss if Microsoft wins the case. Earlier this year, Flextronics International Ltd., which manufactures the console for Microsoft, began the process of moving some Xbox production to China from facilities in Hungary. Cost savings were cited as a reason for the transfer.


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