|Thacker points to the Xbox as one of the main reasons for Microsoft's interest in bringing chip design in-house. The first Xbox sourced a Mobile Celeron 733 from Intel, which was adequate; and for the Xbox 360, Microsoft tapped IBM to produce a custom triple-core PowerPC CPU. Legend has it that AMD was the original choice for the original Xbox, but was outbid by Intel at the 11th hour. On the graphics side the equation, NVIDIA supplied a GeForce 3.5 of sorts for the first Xbox, and ATI put its Xenos "R500" into the Xbox 360. NVIDIA also supplied audio and networking technologies for Xbox.
Clearly, Microsoft relies heavily on outside help to produce its console product. While the specialized hardware makers have helped to create powerful machines, outsourcing exposes Microsoft to certain levels of instability and risk. A prime example would be NVIDIA's dispute, which eventually lead to arbitration, with Microsoft over a supply agreement for its Xbox chips. Microsoft's Computer Architecture Group may be an effort to reduce its reliance on other companies.
Another aim benefit of Microsoft designing its own chips is that it will have greater control over how its software and operating systems interact with the hardware. By overseeing both, Microsoft may be able to accomplish feats that a company like Intel, who now has to produce chips for Apple computers and software, cannot.