Microsoft Corp. is considering releasing a set-top game console to compete with Sony's upcoming PlayStation 2, according to an American newspaper.

The Wall Street Journal reported that it has discussed the new system, code-named X-Box, with an unnamed Microsoft executive who stated that the device is expected to be manufactured to the company's specifications by PC makers or subcontractors.

The device is expected to go on sale in the fall of 2000, the same time the new PlayStation should be released in the U.S. Sony will be releasing PlayStation 2 in Japan during March, 2000. The X-Box is seen as a hybrid machine, something like a set-top PC, built using PC parts and capable of running PC games.

"If they're going to rely on OEMs, potentially PC OEMs to build these systems, in many ways, the actual marketing and sales of these systems would be up to PC manufacturers," says Kevin Hause, consumer research manager with the Toronto office of International Data Corp. "So it's not just about Microsoft creating support, finding developers to write games and to increase consumer awareness and interest. It's also about computer companies of the world learning how to market and sell a game console."

Microsoft has apparently decided not to use chips from its longtime partner Intel Corp., and is instead strongly considering competitor Advanced Micro Devices Inc.'s Athlon processors, because of the higher performance to cost ratio they provide.

The X-Box is also expected to use the GeForce graphics processor from Nvidia Corp. The PlayStation 2 has been seen by some as competition for Microsoft not only in the gaming market, but also in the set-top Internet market. The PlayStation 2 allows users to access the Internet, much like Microsoft's WebTV box.

Microsoft faces quite a challenge moving into this market. It's already dominated by Sony and Nintendo Co., not to mention Sega, which despite a US$100 million advertising campaign, remains a distant third player.

"I certainly don't want to rule out Microsoft in any way, however, traditionally the market has not done well with more than two game console platforms. It's proven difficult," says Hause.

Executives at several software companies and PC manufacturers say they have been briefed on the X-Box, but as of yet none know of any hardware company that has decided to make and sell it.

Once the unit does go into production, it's unclear if it will be sold under the Microsoft name or the name of the hardware manufacturer.

It's also still unclear what operating system the console will use, given that Sega Enterprises Ltd.'s new Dreamcast is already using Windows CE.

There's some speculation the X-Box will use a new hybrid of Windows 98 and Windows NT that's been developed for non-PC applications.

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