Chartered Semiconductor, a leading contract semiconductor manufacturer, may postpone the beginning of mass production of central processing units (CPUs) for the Xbox 360 game console from Microsoft at thinner process technology. If the information is correct, Microsoft will be unable to decrease manufacturing cost of the console.

Sources with knowledge of the matter reportedly revealed to DigiTimes web-site that Chartered plans to produce CPUs for Microsoft Xbox 360 game console using 65nm fabrication process only in the middle of 2007, which is, at least, a quarter behind the original production schedule.

Both Chartered and Microsoft announced in April, 2006, that the former will manufacture the 65nm version of Xbox 360 three-core microprocessor based on the PowerPC architecture in Q1 2007.

Currently Chartered and IBM produce Xbox 360 microprocessors using 90nm fabrication process and while yields of the chip have increased greatly since the initiation of production, 65nm process technology would allow to further cut down the cost of the processor, which would provide further opportunities to reduce the cost of the console itself.

According to iSuppli’s most recent analysis, the premium version of the Xbox 360 game machine equipped with hard disk drive has a manufacturing and materials total of $323.30, based on an updated estimate using costs in the fourth quarter of 2006. This total is $75.70 less than the $399 suggested retail price of the Xbox 360. A year ago the total bill of materials (BOM) cost for the Xbox 360 Premium, including hard disk, the DVD drive, enclosures, the Radio Frequency (RF) receiver board, power supply, wireless controller, cables, literature, and packaging, reached $525, well above the retail price of $399.

Microsoft Xbox 360 console is based around triple-core microprocessor developed by IBM, high-definition visual processing unit designed by ATI Technologies featuring unified shader architecture, I/O controller engineered by SiS and some other key components. The gaming machine provides a broad set of multimedia capabilities, including high-definition movies and TV programs downloads in addition to games. Microsoft Xbox 360 core without hard drive is currently priced at $299, whereas the model featuring 20GB HDD and wireless controller has recommended price of $399 in Europe and the U.S. Microsoft also offers HD DVD add-on drive for the console for $199.

Chartered and Microsoft did not comment on the news-story.