Consumer Wars: Battle for the Boxes — IBM to design PowerPC for Nintento's video game player

Electronic News, May 17, 1999 by Peter Brown

San Jose-IBM Microelectronics' deal with Nintendo could signal a changing of the guard in the booming consumer electronics microprocessor business, marking the rise of PowerPC at the expense of MIPS.

Nintendo, Kyoto, Japan, last week said it will use a version of IBM's PowerPC microprocessor in its next-generation video game console, which will succeed the company's vaunted Nintendo 64 system at the end of 2000. The design win is expected to generate at least $1 billion in revenue for IBM over the life of the console, code-named Dolphin.

Dolphin will use a version of the PowerPC manufactured using IBM's advanced 0.18-micon process technology with copper interconnect. The new PowerPC, dubbed Gekko, will operate at a clock speed of 400MHz. IBM said the chip will offer graphics quality and performance that far exceed any competitive video game console, which would include upcoming Sega Dreamcast and the next-generation of Sony's popular PlayStation.

With the shipment of the Dolphin, PowerPC will replace the MIPS microprocessor as the main processing engine of Nintendo's video game console, which has proven to be a highly-profitable design win. Sales of the MIPS VR4300 and Reality Co-Processor graphics chip in the Nintendo 64 system have made hundreds of millions of dollars for designer MIPS Microsystems Inc. and for manufacturer NEC Corp.

From mid 1995 through the end of 1998, MIPS Microsystems garnered nearly 63 percent of its revenues-more than $100 million-from

royalties associated with its Nintendo design win. NEC in 1996 and 1997 sold nearly $800 million worth of chips into the 32-/64-bit video game console market, mainly for the Nintendo 64, according to the market research firm Dataquest, based here.

The Nintendo design win also has been a key factor in propelling the MIPS architecture to the number one rank in the digital consumer electronics microprocessor market. MIPS is the leading 32-/64-bit microprocessor in digital consumer electronics products, with the majority of the volume accounted for by video game platforms, including the Nintendo 64. MIPS stole the number one rank from Hitachi's SH microprocessor, which previously held the leading position due to its design win in Sega's Saturn video game console.

Video games traditionally have been the largest segment of the digital consumer electronics semiconductor market. NEC in 1997 rose to become the number one vendor of digital consumer electronics chips almost entirely due to the Nintendo design win.

IBM and PowerPC now have a chance to claim the rank, revenue, volume and the prestige bestowed to MIPS by the Nintendo design win. That prestige could give PowerPC a substantial boost in other high-growth consumer products, such as digital set-top boxes, digital still cameras and DVD players.

"We want the PowerPC to have a high penetration in the market and we think this agreement will allow us to crack some opportunities that may not have been there in the past," said Chekib Akrout, manager for advanced PowerPC development at IBM Microelectronics, East Fishkill, N.Y.

IBM has had some small success with the PowerPC in the digital consumer market, with the chip being used in Kodak's digital still cameras. However, PowerPC on the whole has lagged in these areas compared to competitive 32-/64-bit RISC microprocessors such as MIPS, SH, ARM and SPARC.

Analysts said the Nintendo win could change the competitive landscape for IBM and PowerPC.

"It's definitely the push in the right direction for IBM and the PowerPC," said Scott Hudson, senior analyst at Cahners In-Stat Group, Scottsdale, Ariz. "This gives the PowerPC a lot of visibility because the Nintendo products are high volume and well known in the market."

"It's tough being a RISC microprocessor these days because the biggest area of interest is in PCs and RISC won't be in PCs any time soon," said Peter Glaskowsky, senior analyst at Cahners MicroDesign Resources- Sebastopol, Calif.-adding that the opportunities for RISC now are all in non-PC applications. "Success in the gaming console market has spawned other design wins. It happened with MIPS, so it could happen with the PowerPC as well."

IBM's gain is MIPS' loss, analysts said.

Keith Diefendorff, editor-in-chief of "The Microprocessor Report", an industry newsletter published by MicroDesign Resources, characterized the deal as a blow to MIPS Microsystems. MIPS Microsystems has put most of its eggs in the Nintendo 64 video basket, Diefendorff pointed out.

For its part, MIPS Microsystems said it was prepared for the IBM announcement.

"We were not anticipating getting the next-generation Nintendo socket," said Derek Meyer, vice president of marketing and sales for MIPS Microsystems, Mountain View, Calif. "The challenge to MIPS is to make sure we are diverse and continue to grow in our non-Nintendo business so that when the Nintendo 64 starts to decline, we are well set and continue to grow."

Indeed, MIPS Microsystems has a rich array of other high-volume digital consumer design wins. MIPS Microsystems' microprocessors currently are used in the Sony PlayStation game console. The company will make an even greater contribution to the next-generation PlayStation2 console.