how does payment for console chips work? (xbox, gamecube, ps2)

[draggoon01]

http://www.extremetech.com/article2/0,3973,1220430,00.asp

Analysts said ATI had structured its deal more wisely. "The thing you have to remember with that Xbox deal is that ATI did it for royalties; Nvidia did it for component sales," said Dean McCarron, an analyst with Mercury Research. "Nvidia's $92 million revenue from Xbox makes it a big revenue number, but it doesn't translate into profits."

In 2002, Microsoft and Nvidia entered into arbitration over the price of components used in the Xbox. In May of that year, Xbox sales represented about 22 percent of Nvidia's $582.9 million revenue.

ATI's deal with Nintendo, on the other hand, was simply for the design of the Flipper chip, McCarron pointed out. It will likely be up to Microsoft or some contract manufacturer to handle to subcontract the fabrication of the chip, washing ATI's hands of a similar potential conflict, he said.

with gamecube, xbox, and ps2, how did the deals work? from the quote it says nintendo only paid ati (art x) for design. so nintendo produces the chips themselves?

for xbox, nvidia designed and makes the chips, and msft simply buys chips at a set price, like we buy stuff from newegg? who owns the design then? will xbox2 be backwards compatible?

why is it wiser to do royaly structure? msft is in charge of production, but pays ati roylaty per chip made?

sony is making ps3 chip with ibm so how's that going to work?

i never understood why it's always said nintendo makes money off of their consoles sold, even at lower price than either ps2 or xbox, considering it's about same as xbox except hard drive.

any insights appreciated

 

[Adul]

it costs less for nintendo to produce their consol. A lot less then the xbox or ps2. that is why they make money on it. Nintendo has someone make thier parts for them. not sure who puts itall together though.

 

[Queasy]

The reason Nintendo makes money off their consoles is because they do what is necessary to keep production costs to a minimum.

Example: Whereas PS2 and Xbox are designed to play DVD movies, the Gamecube is not. Whereas, the PS2 and Xbox have actual drives, the Gamecube has a flip top loader. Whereas, the PS2 and Xbox have larger form factors, the Gamecube is much smaller.

Things like I mentioned can reduce the overall cost. Plus, once you start manufacturing more and more units and make refinements to either the unit itself or the production process, costs go down as well.