MSFT: $1B Xbox Fumble Due to Chip Design

Application-specific integrated circuits, or ASICs, have been on a long decline. This class of chips, which are custom-designed for a particular customer's specific application, has become far too expensive for most OEMs, especially with the arrival of application-specific standard products. ASSPs are designed for a particular product, but are cheaper because they are shared among various customers, enabling costs to be spread. 

But there are still situations where paying an outside ASIC house to design a specific chip is worth it. Ask Microsoft Corp. (MSFT).

According to a report published Monday night in EETimes, the heat problems in the company's Xbox 360 gaming console that resulted in a $1 billion recall last year resulted from a faulty graphics chip, and Microsoft had no one to blame but itself. The problem stemmed from the fact that, rather than hire an outside ASIC house to design the critical chip, Microsoft did it internally. The company eventually hired a U.S. company (Microsoft turned to ATI Technologies Inc., now part of AMD Inc. (AMD), according to the report) to revamp the chip.

Few believe that ASICs will return to their former glory, but Microsoft's story lends credence to the notion that this kind of custom chip isn't dead. In fact, several ASIC startups have cropped up in recent years and drawn significant interest from VCs. Open-Silicon Inc., for example, last year got $10 million in late-stage VC funding to fund its lower-risk, lower-cost ASIC products. In March, eASIC Corp. got a big $48 million round, bringing its total funding to around $80 million.

These smaller players might be able to hold out in their niches, but it won't be easy, especially in the currently sluggish semiconductor industry. But Microsoft's blunder proves that ASICs can still play an important role in the success of big-name end products.

Comments

[lanceofgrebo]

It just goes to show you whenone guy was number one forever, No 2 has problem in adjusting to being No 1.

Usually it is better to hire someone from out side instead the perpetual No.2.