Microsoft has dropped Nvidia in favour of the graphics chip maker's arch-rival, ATI, as the provider of the graphics technology to be incorporated into its as yet unannounced next-generation Xbox console. So says a report on Internet gaming-oriented web site Spong, citing "senior development sources in the UK".

Certainly Microsoft and Nvidia haven't had any easily relationship during the life of the current Xbox. The highly competitive and price-sensitive nature of the console market required Microsoft to be flexible on price. Nvidia is believed to have been decidedly inflexible when it came to helping the software giant achieve its pricing goals. Microsoft wanted to pay less for its chips than originally agreed, but Nvidia (quite understandably) stuck to its guns.

But more prosaic reasons may lie behind the decision - if such as decision has been taken. ATI has a Pentium 4 bus licence from Intel; Nvidia does not. Microsoft would undoubtedly be looking at a more advanced CPU for Xbox 2 than the current console's Pentium III, and the P4 is a logical step up.

If there is an ATI connection, then that would seem to preclude the use of an AMD chip, for which Nvidia would be the most logical partner thanks to its nForce expertise. Indeed, the current Xbox's chipset is essentially an nForce geared to work with a PIII.

ATI is nevertheless a problematic partner for Microsoft as it is already Nintendo's chosen graphics contributor for the next-generation GameCube. Or is that a problem? Spong suggests that Nintendo and Microsoft are natural allies against market leader Sony - my enemy's enemy... - and this opens the door to co-operation between the two, with ATI as a third member of the alliance.