Although hardware vendors generally sell consoles at a loss when they are launched, steady advances in technology mean that the manufacturing cost is typically cut by 50 per cent or more during the first five years of production.
The new 65nm technology is also capable of running software faster than that used in the existing Xbox 360 CPU, Chartered said. But the company did not state whether the CPU's performance when running software would be upgraded in any way to take advantage of this potential.
It is uncommon for manufacturers to increase the speed of chips in games consoles which are already on the market, because this can cause unexpected compatibility issues with games developed for the original hardware design, as well as bad feeling among existing owners.
The term '65 nanometre' refers to the size of interconnections and individual components on the CPU. Reducing these sizes allows the manufacturer to shrink the entire CPU.
Although manufacturers do not release cost details, smaller CPUs are cheaper to make because of the economies of scale the builder can achieve by packing more of them onto each 300mm silicon wafer.
The triple-core Xbox 360 CPU contains 165 million transistors. Chartered is one of two manufacturers of the CPU; the other is IBM, which designed the chip. IBM also helped develop the silicon-on-insulator technology that Chartered uses to make the CPU.
"We plan to continue with our strategy of dual sourcing from Chartered and IBM's fabs, which are operationally aligned and compatible, to give us the consistent product quality and flexibility we will need," said Larry Yang, general manager of Xbox console development at Microsoft.
Chartered said that it is also working on yet more advanced 45nm chip making technology, but has not said whether this will be applied to Xbox CPU production when it becomes available.