ATI Technologies, a leading supplier of graphics processors and technologies, said Wednesday it would supply Microsoft a decoder for H.264 videos located on HD DVDs. This once again confirms that Microsoft is looking forward to add next-generation media format playback to its Xbox 360 console.

ATI and Microsoft did not reveal any details concerning the decoder, however, they indicated that ATI decoder technology makes use of the Xbox 360’s graphics processing unit (GPU) to accelerate video processing. Given that the chip named Xenos (and sometimes referred to as R500) has 48 unified shader processing units, its performance should be enough for decoding HD DVD content.

The companies said that the decoder is based on ATI Avivo technology, which is a combination of hardware and software features found in the Radeon X1000-class products by ATI. Nevertheless, it is unclear, whether customers will have to install anything onto the console, or the decoding software will be embedded into the external Xbox 360 HD DVD drive.

“The decoder technology used in the new drive provides high fidelity visuals unlike anything ever seen before. This is another example of the close cooperation between our two companies, and the commitment we both share to delivering the most immersive experience possible for audiences around the world,” said Rick Bergman, senior vice president and general manager, PC business unit, ATI.

Microsoft said during the E3 show in Los Angeles, California, that it would release an HD DVD drive for the Xbox 360 by holiday season. The drive will be external, but the company claims that it would be able to act as an HD DVD player when paired with the console.