Microsoft Corporation and IBM Corporation today made an official announcement that the companies have entered into a semiconductor technology agreement. Under the terms of the agreement, Microsoft has licensed leading-edge semiconductor processor technology from IBM for use in future XBOX products and services to be announced at a later date.

Earlier this year Microsoft and ATI Technologies announced collaboration in development of “custom, leading-edge graphics technologies for use in future XBOX products and services.”

“Microsoft is already developing the software and services that will drive the Digital Decade,” said Robbie Bach, senior vice president of the Home & Entertainment Division at Microsoft.

There were some unofficial rumours about IBM’s participation in MS XBOX 2 project in early October, but neither IBM, nor Microsoft confirmed anything at that time.

“By combining our vision, software experience and R&D resources with IBM’s computer and semiconductor technologies, we plan to deliver unprecedented and unparalleled entertainment experiences to consumers while creating new engines of growth for the technology and entertainment industries.” Bach added.

According to Bernie Meyerson, IBM Fellow and chief technologist for IBM’s Technology Group, the new XBOX technologies will be based on the latest in IBM’s family of state-of-the-art processors.

Currently IBM supplies its Power processors for high-end servers, a special cut-down version of Power CPUs for desktop Apple computers, additionally, IBM developed the microprocessor for Nintendo GAMECUBE console, also based on Power architecture. All these chips are 64-bit and do not support x86 in any way. This means that the XBOX 2 will hardly be compatible with the original XBOX, which uses conventional x86 CPUs. Moreover, IBM’s 64-bit architecture in the Next XBOX means Microsoft will have to develop a new operating system for the console, while its hardware technology partners to work on appropriate drivers.

It took Nintendo and IBM about 3 to 4 years to tailor PowerPC micro-architecture for Nintendo GAMECUBE console and create the actual CPU. With Microsoft’s XBOX 2 IBM will have less than three years to create the microprocessor.

Additional financial and technology details about the agreement were not available at press time.