Microsoft said on Thursday it is dumping Nvidia Corp. in favor of the graphics chipmaker's main rival, ATI Technologies, for the software giant's next-generation Xbox video game console.
The deal is a significant blow to Nvidia, the world's largest graphics chipmaker, because its Xbox business accounted for 21 percent of the Santa Clara firm's $1.9 billion revenue last year.
The immediate impact the switch will have on Nvidia's revenue is unclear because Microsoft's next-generation gaming console won't be out until late 2005 or 2006. In addition, Microsoft will probably continue to manufacture and sell its original Xbox as it goes through a product transition period, analysts say.
The inability of Microsoft and Nvidia to agree on the future development, manufacturing and pricing of the graphics chips apparently led to the choice of ATI.
"We selected ATI after reviewing the top graphics technologies in development and determining that ATI's technical vision fits perfectly with the future direction of Xbox," Robbie Bach, senior vice president of Microsoft's home and entertainment division, said in a written statement.
Microsoft's decision to go with ATI, which is based in Toronto, is not a huge surprise considering the tenuous ties between Nvidia and the software company. The two were at odds with each other over the pricing of Nvidia's chips, avoiding a certain bitter court battle through an arbitration hearing earlier this year.
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