NEW YORK (CNN/Money) – It might have lost the fight for Xbox 2, but don't count nVidia out of the console business just yet.
ATI (ATYT: Research, Estimates) beat out nVidia earlier this month for the right to provide the graphics chip for Microsoft's (MSFT: Research, Estimates) next game machine. That followed ATI's March announcement that it had struck a technology development deal with Nintendo, presumably to supply the graphics technology for the successor to the GameCube.
The king of the console industry hasn't made any commitments yet, though. And while Sony (SNE: Research, Estimates) has preferred to own the technology components in past PlayStations, it might be mulling some changes this time around.
"The reality is nVidia is not sitting in a vacuum," said Erach Desai, an analyst with American Technology Research. "They are in discussions with Sony for the PS3."
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Because of its age, the PlayStation 2 is the weakest graphically of the three consoles on the market. The machine is a year older than the Xbox or GameCube – and Sony froze the design specs long before the machine hit store shelves. The machine's current graphics chip was designed by Sony and manufactured by Fujitsu.
"They realize, I think, that they cannot do it all," said Desai. "I have checked with a couple of very seasoned executives ... and the strong impression is that there is interest from Sony and interest from nVidia."
Sony and nVidia (NVDA: Research, Estimates), for their part, aren't saying much about the whispers. Sony spokesperson Teresa Weaver said the company "hasn't made any announcements" regarding the PS3 - including a formal announcement that there would be a PS3.
nVidia was a little more forthcoming - but not much.
"We've always said we'd be happy to be in any game console," nVidia spokesperson Carrie Cowan told me recently. "We were pleased with the success of Xbox and feel nVidia helped elevate it to where it is today."
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nVidia's experience in the console field certainly works in its advantage if it is in negotiations with Sony. The contentious relationship with Microsoft, though, could hurt it. The two companies bickered publicly for a long time about the price of nVidia's graphics chips. That dispute was ultimately settled via lengthy arbitration.
Still, the console business is important to nVidia. The company reported revenues of $460 million in the last fiscal quarter – and CEO Jen-Hsun Huang attributed much of the company's growth to increased shipments of Xbox components.
The graphics chip is the most expensive part of a gaming console, though, which is part of the reason Sony has traditionally kept development of that unit in-house. And price is certain to be in the forefront of the company's mind, since the speculated cost of the "Cell" microprocessor, which will power the PS3, is not going to be cheap.
Those cost concerns, combined with Sony's do-it-ourself history, that has some other analysts a bit more skeptical that nVidia will be able to win a PS3 contract.
"I would probably characterize it as a less than 50 percent chance that they win PS3," said Michael McConnell of Pacific Crest Securities. "However, we have talked with Sony and their take on it is they're considering an external vendor as well as an internal solution. So you can't rule it out, but you definitely can't say it's a sure thing."
Morris is Director of Content Development for CNN/Money. Click here to send him an email.