Microsoft said Monday it had licensed IBM microchip technology for use in its Xbox game consoles, a step that could help make IBM the leading chip maker in the video game business.
The announcement was sketchy on details, but industry analysts said the agreement was a significant endorsement for IBM and a setback for Intel, Microsoft's longtime ally in the personal computer industry. Intel makes the microprocessors that power today's Xbox consoles. The IBM pact applies to the next generation of Xbox consoles, which analysts expect to be introduced in 2005 or 2006, though Microsoft had not announced a shipment date.
IBM may be best-known for its big computers that run corporate and government data centers. But with computer games increasingly using the same animating technology as supercomputers, IBM has become more focused on the game console business.
Already, IBM supplies the processors for Nintendo GameCube machines, and it has forged a partnership with Sony to design processor technology for the successor to its current PlayStation 2 console.
With the Microsoft deal, IBM appears to have an inside track with the three major console makers. That opens the door, analysts say, to IBM, which ruled the mainframe era, in potentially achieving a dominant position as a supplier of technology for computer games.
"By the middle or end of this decade, IBM could have as much influence and market power in the console market as Intel does in the personal computer industry," said Richard Doherty, president of Envisioneering, a technology research firm.
There would be some irony in such a rise for IBM. It was, after all, IBM's decision to use Intel microprocessors when it entered the personal computer business in 1981 that helped make the Intel chip the standard in the PC industry.
Still, there is no assurance that IBM can become a technology power in the game console business. Sony, the largest console maker, for example, has agreed to joint development work with IBM, but has made no commitment on manufacturing. Sony could make the jointly designed chips itself, buy them from IBM or have them built by another supplier.
The Microsoft announcement did not go beyond saying that it had "licensed leading-edge semiconductor processor technology from IBM for use in future Xbox products." The announcement does not specifically say Microsoft has chosen IBM instead of Intel for future Xbox development, and in theory, Microsoft could be setting up a competition between the two suppliers.
IBM does not appear to read things that way.
"This is a significant win for us against Intel," said Scott Sykes, an IBM spokesman.
A spokeswoman for Intel declined to comment on the Microsoft-IBM announcement.
The Microsoft announcement will not have any impact on IBM's financial results anytime soon. But it does seem to be a further sign that IBM is attracting more outside business.
"That seems to be falling into place," said Mark Stahlman, an analyst for American Technology Research, a brokerage firm. By the second half of next year, Stahlman estimates, IBM's chip business could be contributing US$250 million in operating profit a quarter instead of losing money.