A dissection of Microsoft's new Xbox 360 Premium video-game console conducted by iSuppli Corp.'s Teardown Analysis Service indicates that IBM silicon is a key factor driving the cost and functionality of the product. Beyond the Xbox 360, IBM chips are also at the heart of two other next-generation game consoles set to hit the market in the coming months. Thus, while it's too early to say whether Microsoft's Xbox 360 will prevail in the gaming market, IBM is a sure winner in consoles due to its across-the-board design wins.

"A lot of people ask me which company will win in the video-game console market: Microsoft or Sony? I reply, 'IBM,'" said Chris Crotty, senior analyst for consumer electronics at iSuppli. The Sony Corp. PlayStation 3, due for launch in early 2006, will utilize the new Cell processor jointly developed by Sony, Toshiba and IBM. Nintendo's Revolution platform will also feature a custom IBM chip at its core.

IBM designed and co-manufactures the custom microprocessor that powers the Xbox 360. The microprocessor is a triple-core PowerPC that runs at a frequency of 3.2GHz. At a cost of $106, this single part accounts for 20.2 percent of the total Bill-of-Materials (BOM) cost for the Xbox 360 Premium, according to preliminary findings from the iSuppli Teardown Analysis Service.

Other key semiconductors in the Xbox 360 include the Graphics Processing Unit (GPU), the memory and a Southbridge I/O controller. The GPU, designed by ATI Technologies to provide groundbreaking High-Definition (HD) graphics, costs an estimated $141, including embedded DRAM from NEC. This makes the ATI GPU the single most expensive component in the Xbox 360, exceeding even the cost of the microprocessor.

The main memory, 512Mbytes of GDDR DRAM from Samsung Electronics Co. Ltd., accounts for another $65 of the BOM. The SiS Southbridge chip costs an estimated $12. Other semiconductors and electronic components make up the remaining cost of the $370 motherboard.

Factoring in costs for the hard disk, the DVD drive, enclosures, the Radio Frequency (RF) receiver board, power supply, wireless controller, cables, literature, and packaging – the total BOM cost for the Xbox 360 Premium reaches $525, well above the retail price of $399. The high BOM cost for the Xbox 360 is not unusual. In the video-game business, equipment producers often market games consoles as loss leaders for more lucrative software and licensing fees. "It's really not surprising for the initial cost of the console to approach or even exceed the retail price," said Andrew Rassweiler, manager of iSuppli's Teardown Analysis Service. The good news for Microsoft is that during the next year, improved yields for the IBM microprocessor and the ATI GPU should save at least $50 per unit, in addition to other cost reductions, Rassweiler added.

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