ATI have not only grabbed the XBox graphics out of nVidia's grasp but have issued a joint announcement with Microsoft using the new deal as "further" proof of their position as "graphics leaders."

Current XBox consoles use nVidia graphics, roughly equivalent to a PC GeForce 3. It is estimated that Microsoft are losing about USD 150 on every console sold so it is understandable that they would want to pressure hardware suppliers in order to cut down on their costs. It seems that the ATI deal is part of the cost-cutting effort by Microsoft.

Under the agreement, ATI is developing custom, leading-edge graphics technologies for use in future Xbox products and services. We?re combining Microsoft's vision, software experience and R&D resources with ATI's pioneering leadership in graphics technologies to create innovative future Xbox products and services that meet the lifestyle needs of consumers in the Digital Decade, said Robbie Bach, senior vice president of the Home and Entertainment Division at Microsoft. 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.

Microsoft shares our passion for cutting-edge innovation, said K. Y. Ho, chairman and chief executive officer, ATI Technologies Inc. Our success working with Microsoft in the past gives us great confidence as we move forward, and our broad experience and wealth of engineering resources will ensure that we deliver. This agreement cements ATI's position as the prime graphics supplier for the future of the games industry.