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Microsoft’s First Chip Brings Tank-Finding Design to Xbox

Microsoft Corp. (MSFT), seeking to fend off competition for its Xbox game console by souping up the Kinect motion sensor, is tapping a new semiconductor developer: itself.

For the first time, the company will build its own processors based on an in-house design. The new chips will make Kinect more accurate and responsive using an imaging technology found in military gear, said Cyrus Bamji, who played a key role in developing the silicon architecture. Previously, Kinect relied on an off-the-shelf chip from Israel’s PrimeSense Ltd.

Microsoft joins companies such as Apple Inc. (AAPL) that are doing more work on chips internally to add exclusive features and set their devices apart. Microsoft will package the Kinect with the latest version of the Xbox later this year, adding $100 to its price. Gamers who don’t see the value may be tempted to opt for Sony Corp. (6758)’s $399 PlayStation 4, instead of Xbox One at $499.

“We are seeing a big trend towards more of the hardware makers out there, whether it’s smartphones or whether it’s tablets, starting to bring more of that semiconductor function in-house,” said Jon Erensen, an analyst at market-research firm Gartner Inc. “It allows them to differentiate. Everybody in the market is using the same off-the-shelf processor.”

Time of Flight

Kinect is a camera-based device that connects to the Xbox to let users translate body motions and voice commands into game moves -- say, in a virtual tennis or car-racing game. The newest version of the sensor will include TV controls.

The Kinect chips, designed by a team mostly based in Microsoft’s Silicon Valley office, use a technology called Time of Flight that will let the sensor track minute changes in a user’s body, like finger movements and facial expressions, a much more precise system than the earlier version. That lets Microsoft eliminate some of the failings of the first Kinect, Bamji said.

Time of Flight works by bouncing photons off a person or object, and has been used by military agencies for tasks like detecting a tank hiding behind tree cover, Bamji said. Texas Instruments Inc. and Infineon Technologies AG are also developing chips using Time of Flight.

When it goes on sale, Xbox One will face tough competition from Sony’s new PlayStation 4, as well as Nintendo Co. (7974)’s Wii U. Kinect in the past has largely appealed to kids and casual gamers and hasn’t had much content targeted at serious gamers, said Rob Sanfilippo, an analyst at Kirkland, Washington-based Directions on Microsoft. The new version may still not lure those customers from rivals.

Design Challenge

There’s also the challenge and cost of creating a new chip from scratch, which can run into the tens of millions of dollars and take months of testing. One mistake in design or manufacturing slip-up can cause months of delay to a final product. For a company like Microsoft, with less experience in developing chips, there’s a risk that performance may not be as expected, Gartner’s Erensen said.

Microsoft, which announced the shift in May, follows some of the largest consumer-electronics makers in taking over more of its own chip design. Apple’s iPhone and iPad run on processors that the Cupertino, California-based company designs itself and has manufactured by Samsung Electronics Co. While the chips are based on ARM Holdings Plc technology, Apple customized the layout and makeup of the chip’s components.

Samsung also is using more of its own chips in its mobile phones, and LG Electronics Inc., HTC Corp. and Lenovo Group Ltd. have all talked about it, Gartner’s Erensen said.

Taking Note

While Microsoft’s Xbox and WebTV units have previously done some work designing chips, the company has never handled this much of a chip’s design, development and assembly, said Microsoft Distinguished Engineer Nick Baker, who leads the silicon architecture and verification teams. The company has about 200 people working on microprocessors. Only the mass manufacturing for the Kinect chips has been handed off to a chip foundry, Taiwan Semiconductor Manufacturing Co.

Other groups at Microsoft are taking notice, asking the Xbox team about their work on chips, and may even pursue a greater role in customizing their own microprocessors, said Todd Holmdahl, the vice president who has overseen Xbox hardware since the development of the first version in 1999.

Custom Features

The world’s largest software maker first moved into making its own computer hardware last year with a line of tablets called Surface. The company could choose to customize existing chips in order to gain attention and new features for Microsoft-powered smartphones and tablets, which have a tiny share of both those markets, Directions on Microsoft’s Sanfilippo said.

“It’s pretty likely that Microsoft will be getting more into the hardware business,” he said. “So it makes sense for them to invest more right down to the silicon so they can have proprietary features.”

That investment may be crucial to the continued success of Xbox, the bright spot among Microsoft’s consumer businesses, especially as sales of the company’s Windows personal-computer software stagnate and as Surface demand disappoints. Xbox accounted for the bulk of revenue in Microsoft’s $10.2 billion Entertainment and Devices division.

The appeal of Xbox One will rest partially on whether the new chips improve on the previous Kinect. After Nintendo Co.’s Wii introduced a handheld controller than let gamers play by swinging and moving the device, Kinect pushed the envelope further by integrating full-body motion and voice into games. For some customers, it hasn’t delivered on its initial promise.

“I’m unhappy with the way it works,” Sanfilippo said of the current Kinect. “And I’m not sure if I would want the device if I upgrade to an Xbox One. The selling point from Microsoft is that this one is more accurate and faster.”

Precision Needed

The PrimeSense chip in the previous Kinect, which sold 24 million units, or about one for every three Xbox 360 machines, didn’t provide the precision and responsiveness that Microsoft needed for the device. That version has trouble reading the motions of small children, seated players and low-light situations, Holmdahl said.

The new iteration handles those situations better and can pick up even small changes, such as a finger movement, facial expressions and heart rate, he said, and has a field of view that’s 60 percent bigger than the previous Kinect.

As the new Xbox is rolled out for the holiday shopping season, Microsoft will see whether the new chips can make Kinect a bigger draw for both families and hard-core gamers -- and help justify Xbox One’s premium price.

“It’s super-important,” Holmdahl said. “We have an opportunity to change the living room.”

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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Photographer: Patrick Fallon/Bloomberg

Attendees look at the Microsoft Corp. Xbox One video game console during the E3 Electronic Entertainment Expo in Los Angeles, on June 11, 2013.

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Photographer: Patrick Fallon/Bloomberg

Attendees look at the Microsoft Corp. Xbox One video game console during the E3 Electronic Entertainment Expo in Los Angeles, on June 11, 2013. Close

Attendees look at the Microsoft Corp. Xbox One video game console during the E3 Electronic Entertainment Expo in Los... Read More

Photographer: Stephen Brashear/Invision for Microsoft via Bloomberg

Kinect Group Program Manager Scott Evans demonstrates the new Microsoft Corp. Xbox Kinect sensor in Redmond, Washington, on May 14, 2013. Close

Kinect Group Program Manager Scott Evans demonstrates the new Microsoft Corp. Xbox Kinect sensor in Redmond,... Read More

Photographer: Stephen Brashear/Invision for Microsoft via Bloomberg

Microsoft Corp. Xbox controllers are seen during testing in the company's accessories lab in Redmond, Washington. Close

Microsoft Corp. Xbox controllers are seen during testing in the company's accessories lab in Redmond, Washington.

Source: Microsoft Corp. via Bloomberg

The Xbox Kinect chips, designed by a team mostly based in Microsoft Corp.’s Silicon Valley office, use a technology called Time of Flight that will let the sensor track minute changes in a user’s body, like finger movements and facial expressions, a much more precise system than the earlier version, which is seen on the left. Close

The Xbox Kinect chips, designed by a team mostly based in Microsoft Corp.’s Silicon Valley office, use a technology... Read More

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