Aftermath Xbox 2: ATi strikes royalty agreement, avoids MS pitfall – Cash injection revealed

Market-leader burnt, nVidia mistake to be avoided

Posted by Staff
Following our revelation last month that ATi will be supplying the graphical heart for the next generation of Xbox, the PC graphics card manufacturer has been keen to point out that it will not be falling into the overstock trap as befell nVidia.

According to the firm, the agreement will be royalty-based, with ATi seeing a portion of the pie of each Xbox sold, rather than supplying GPUs as a third party contractor.

This will see both firms working closely together as partners, and should avoid the bitter stock-driven disputes that dogged the nVidia agreement. As you may remember, neither party could agree on a payment structure, leading to a bitter and protracted arbitrated settlement.

ATi will also see a significant cash injection to trigger the research and development needed for the project. Indeed, we revealed back in June that ATi had taken a “deferred revenue associated with an unannounced contract” to the value of $18 million. We can now confirm that this was taken as pre-payment from Microsoft for Xbox 2 GPU development.

“We get funds for the actual development of the chip, and then in the future when we actually ship devices, we get a royalty per device," confirmed Rick Bergman, a senior vice president of marketing at ATi.

The big question forming in the minds of most analysts at this point in time is how the Microsoft deal will impact on ATi’s ongoing work with Nintendo. “We've had a good strong long history with Nintendo,” Bergman continued. “We don't expect any impact. We're comfortable with our relationship with Nintendo and I think we're great partners.”

Shares in both nVidia and ATi saw intense trading overnight, with over 4 million ATi shares trading hands. ATi shareprice leaped 12% rising $1.52 to $13.77. The value of nVidia stock dropped 53 cents to $16.25.

Expect more regarding that actual power of Xbox 2 from XO3 in a few week’s time.


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