Richard Doherty, of Seaford, New York-based Envisioneering, a technology advisory company, said that IBM's PowerPC chips consume less power and run cooler than other chips. They compete with chips from Santa Clara, California-based Intel and Advanced Micro Devices Inc. (AMD.N: Quote, Profile, Research) , a much smaller microprocessor maker in Sunnyvale, California.
"Intel had wrestled away the design win for Xbox from AMD at the last minute, and this will probably be quite a surprise to Santa Clara this morning that the next generation from their ally in system design, Microsoft, is going to their rival," Doherty said.
IBM, based in Armonk, New York, has licensed microprocessor technology to other companies and makes chips for Apple Computer Inc. (AAPL.O: Quote, Profile, Research) and for the Nintendo gaming console, among others, in its factories.
IBM opened a new semiconductor plant in East Fishkill, New York earlier this year and has been trying to lure new customers to the plant.
The next version of Xbox is expected to be announced in January by Microsoft founder and Chairman Bill Gates and to be on sale next fall ahead of the holidays, according to Doherty.
IBM is also working with Sony Corp. on a chip for its next version of the PlayStation gaming console. Earlier this year, Nvidia, which makes graphics chips often used in gaming, also turned to IBM to start making certain of its chips.