ATI has confirmed that it has won the contract to develop graphics chips for the next generation of Microsoft's Xbox console.
The announcement ends speculation that the company had wrested the Xbox gig from its arch-rival, Nvidia.
"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," said Robbie Bach, senior VP of the Home and Entertainment Division at Microsoft, in the official statement.
However, it's widely believed that Microsoft and Nvidia simply couldn't reach an agreement over the direction the project would take.
"[Nvidia] didn't want to meet Microsoft's demands for the floating design of Xbox Next. It didn't make sense to partner on the project. At this moment in time, ATI is working with Microsoft," an Nvidia staffer said in June, according to Spong.com, which first broke the story.
The fact that Nvidia and Microsoft fell out over how much the latter should have paid for the former's graphics and system chips may also have played a part in the drama.
The highly competitive and price-sensitive nature of the console market required Microsoft to be flexible on price. Nvidia is believed to have been decidedly inflexible when it came to helping the software giant achieve its pricing goals. Microsoft wanted to pay less for its chips than originally agreed, but Nvidia (quite understandably) stuck to its guns.
ATI already has a deal to provide Nintendo with graphics chips for GameCube, but the fact that Xbox has the potential to out-sell the Nintendo machine may well have persuaded ATI that it can risk offending its Japanese partner by working with a direct competitor.
To date, Nintendo has shipped some ten million GameCubes since the console's 2001 launch. By contrast, Sony has shipped over 51 million Playstation 2s since 2000. Microsoft has sold nearly ten million Xboxes since its launch in November 2001.
Nintendo's decision to suspend GameCube production until the autumn suggests the console is in trouble, doubly so when accompanied by the company's admission that it failed to secure a good line up of titles for the machine. Production will only resume if Nintendo can sell off a good proportion of its warehouse stock. ®