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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1639)	5/12/1999 3:49:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

IBM to Make Game Part for Nintendo New and Booming Field for Beleaguered Chip By JOHN MARKOFF -- May 12, 1999 Underscoring the growing significance of inexpensive video game machines in the computer industry, IBM Corp. and Nintendo Inc. plan to announce Wednesday a $1 billion agreement for Nintendo to build its next-generation system with IBM's PowerPC processors. Until now, the PowerPC chip has been best known as the processor that powers the Macintosh line of computers from Apple Computer Inc. The deal is something of a coup for IBM, which will gain a coveted foothold in a booming market being fiercely contested by three Japanese giants -- Nintendo, Sony Corp. and Sega Enterprises. Many in the computer industry predict that powerful game machines from the three companies will begin taking on a wide variety of computing tasks in their next generation, including Internet communications and music and video entertainment. And because the business model for video games uses software sales to subsidize the cost of hardware, the machines are almost certain to cost less than even the least expensive personal computers. What is more, by some measurements, they will outperform computers. Executives at Nintendo and IBM refused to comment Tuesday, but people close to the deal said the companies planned an announcement at the E3 video game convention in Los Angeles. Such a deal would also serve to revitalize IBM's beleaguered PowerPC business, which was founded as a great strategic alliance with Apple and Motorola Corp. in 1991, but has languished. Although the venture was originally intended to provide an alternative hardware standard to processors made by Intel Corp., bureaucratic squabbling and the failure to bring several next-generation operating systems to market undercut the alliance. Under the agreement with Nintendo, IBM will make a custom 400-megahertz PowerPC microprocessor for a new Nintendo game machine, scheduled for worldwide introduction in the fall of 2000. The chip, which will be made using IBM's currently most advanced manufacturing process, will be paired with a high-performance graphics chip being designed by Wei Yen, a former computer designer from Silicon Graphics Inc., people close to the agreement said. Yen leads a small computer graphics design firm, ArtX Inc., based in Palo Alto, Calif. The Nintendo PowerPC chip will permit the game machine to display realistic three-dimensional images and will be a source of rivalry between Nintendo and Sony, which last month began demonstrating its Playstation II. The Sony system is built around a high-performance graphics processor that Sony is now designing with Toshiba Corp. The two companies are investing as much as $2 billion in a new semiconductor manufacturing plant to produce integrated circuits for the game system, which is expected to go on sale in Japan later this year. The rivalry between Sony and Nintendo threatens to eclipse Sega, which has built its Dreamcast machine around an alliance with Microsoft Corp. The Sega system, which is now being sold in Japan, has graphics processing power that is better than the current systems, but it will be no match for new systems planned by Sony and Nintendo. Michael Slater, editor of The Microprocessor Report, said, however, that in the world of video game machines the capabilities of the graphics processor, the chip that produces the actual images on the screen, are more crucial than the set's microprocessor chip, which carries out all the other instructions encoded in the game software. "The real performance comes from the specialized graphics engines that perform 3-D operations," he said. The stakes in the video game business, which will have sales this year that surpass Hollywood's box office revenue, have led both Nintendo and Sony to pre-announce their machines to build enthusiasm, particularly among the software developers who supply crucial titles. Although Sony will begin selling its machines later this year in Japan, the actual war for dominance of the next generation of video game players will not take place until Christmas 2000. That is when consumers will have a choice of machines that will offer remarkably lifelike game experiences. Demonstrations given by Sony officials earlier this year suggested that the new game systems would be able to match the visual effects seen in computer-animated movies like "Toy Story," while at the same time allowing players to have interactive control over the characters on the screen. Copyright 1999 The New York Times Company