Microsoft has developed a smaller chipset for the Xbox 360, allowing the manufacturer to cut production costs.
Dean Takahasi, writing in the San Jose Mercury News, reports that Microsoft's new chipset is code-named "Falcon."
The new chipset has an IBM microprocessor and an AMD/ATI graphics chip that are both manufactured in a 65-nanometer production process. The original chipset was manufactured in a 90-nanometer process.
The smaller chipset both reduces the risk of overheating and lowers the production costs associated with the Xbox 360.
Microsoft has not yet officially announced an Xbox 360 price reduction, although the move is expected by many analysts, including Michael Pachter.
The "Falcon" chipset redesign would certainly be a step towards a price reduction. The Xbox 360 has now been on the market for nearly 20 months without a drop in price.