Microsoft's Xbox 720 to use AMD chips

Cost reduction drive behind switch from IBM's Power PC for next-generation of games system

Microsoft's next-generation Xbox console is going to use AMD processors.

Bloomberg reports that sources close to the "Xbox 720" games system say it will use an AMD computer chip instead of the IBM Power PC, as Microsoft looks to reduce the cost of producing consoles while simultaneously attempting to persuade game developers to make more games.

The AMD system-on-a-chip combines a powerful "Jaguar" CPU with graphics chips and represents a shift to the x86 format used by PCs. According to sources with inside knowledge, part of the change means game discs for the current Xbox 360 won't be compatible with the next-gen Microsoft console.

If true, Microsoft's switch to AMD is good news for the chip manufacturer, which will also see its processors powering the PlayStation 4, Sony's rival next-gen console which was announced in February. It comes after last year saw AMD announce job cuts and revenue losses.

AMD has declined to comment on the reports, as has Microsoft, which has yet to release details about its next-gen console. Some reports have suggested the system will be "always-on", requiring users to be connected to the internet in order to play games.

Sony might have got the jump by announcing its PlayStation 4 before Microsoft, but according to Atari co-founder Nolan Bushnell, the Xbox 720 will outsell its PS4 rival.

"Microsoft is in a superior position, and the reason is Sony, whenever it changes consoles, the software tools is has are lame," he told GameTrailers, citing translation from Japan potentially being an issue.

"Microsoft, because of its strong software tools, will end up with much better products sooner. And that will be an advantage. Also don't forget, Microsoft actually has so much money to defend this. Plus, it has a good infrastructure with the [Xbox Live Arcade], with its online world."