A long-running legal spat between NVIDIA and Microsoft over the price of components being supplied for the Xbox has been settled at last - but NVIDIA's involvement in Xbox 2 remains doubtful, with many sources continuing to suggest that ATI remains the front runner in the race to supply the graphics chipset for the system.
The disagreement between NVIDIA and Microsoft originated when NVIDIA claimed that Microsoft was forcing it to supply Xbox graphics components at a significantly lower than agreed price - effectively causing the company to make a loss on each chipset produced.
The dispute has now been concluded, with NVIDIA describing the settlement as a "win-win" for both parties - which presumably means that Microsoft is paying more for the components, but not as much as NVIDIA had hoped. However, the resolution of the dispute puts the whole issue of whether NVIDIA's relationship with Microsoft will continue for another generation of console hardware back on the agenda.
The graphics company, whose GeForce products are the market leader in the PC video card market by a clear margin, is thought to be disappointed by the shipment figures for Xbox. In the last few weeks it has become known that Microsoft has warned some component manufacturers not to expect new orders for Xbox parts in the first half of 2003, as shipments of the console are lower than expected.
NVIDIA has been speaking in guarded terms about the future of its relationship with Microsoft, refusing to rule out a future collaboration but being careful to couch any statements about the next generation console in terms of being a "company with many opportunities". The message here is that NVIDIA is weighing up its options on Xbox 2, and may decide that it's not worth getting involved with.
Of course, on the other side of the story, there's a good chance that NVIDIA isn't the preferred option for the Xbox 2 anyway. Rival graphics company ATI, which manufactures the Flipper chip for the GameCube and whose latest PC board, the Radeon 9700, compares very favourably to NVIDIA's GeForce products, has been hotly tipped as the leader in the race to create a chipset for Xbox 2.
Perhaps most telling of all is the story we've heard from many, many Xbox developers over the past few months - that low-level documentation for the NV2X chipset in the Xbox is not being made available to them, because NVIDIA refuses to release it to Microsoft developer support. The explanation for this offered by developers we spoke to is that NVIDIA is afraid that additional information handed to Microsoft now would be passed straight on to ATI, who would use it to emulate the NV2X in their Xbox 2 chipset.
Although this is an unconfirmed rumour - and seems slightly unlikely, since surely the deal between Microsoft and NVIDIA over the NV2X would dictate strict terms for handing over documentation - the fact remains that the relationship between NVIDIA and Microsoft is on the rocks. While the settlement of the legal action over pricing will help matters, it remains to be seen whether the companies will be prepared to work with each other on another console.