Last month, Microsoft announced one of the costliest console problems in game-industry history. Following rising numbers of reports of Xbox 360 hardware failures, the company announced it would take a $1.08 billion charge to replace or fix any 360 that suffered the "red ring of death" for up to three years after its purchase. The extension was retroactive, meaning it applies to all consoles sold since the 360's November 2005 launch.

　　Microsoft wouldn't identify the exact cause of the red-ring failure, which is widely believed to be caused by the 360's CPU overheating. The console uses a customized chip based on three IBM 3.2GHz PowerPC cores made with a 90-nanometer manufacturing process. The chip's high processing power causes it to run at a high temperature, which requires the console's notoriously noisy fan to cool. Modders have also discovered additional heat sinks in refurbished 360s, bolstering the overheating theory.

　　The 360's cook off days are numbered, though. Last year, Singapore-based Chartered Semiconductor Manufacturing announced a deal with Microsoft to make CPUs for the 360 by using a 65-nanometer process. The smaller size means more chips per production batch, which cuts manufacturing costs. It also makes for a smaller, more energy-efficient CPU--one that generates less heat and is less likely to burn out.

　　Microsoft promised the first batch of 65nm CPU-equipped 360s would arrive sometime this year, with recent reports pegging them as coming in the fall. As part of a recent earnings conference call, Chartered Semiconductor Manufacturing confirmed that it began manufacturing the chips last quarter--raising the possibility they could arrive even sooner.

　　More interestingly, Chartered Semiconductor Manufacturing president and CEO Chia Song Hwee strongly hinted that 360s would be getting even smaller, cooler CPUs next year. During the conference call, he was asked by an analyst about the level of interest from electronics manufacturers in 45-nanometer process chips, which will begin arriving in the second half of 2008.

　　"On the 45[nm] engagement, we have a pretty wide spread of products and customers relative to where we were at the similar stage at 65[nm]," said Hwee. "So from video-game-device type of products to baseband to wireless communication type of devices, we have customers engaged in those areas." When asked again about the 45nm chips, Hwee said that, "We have customer interest in products in CPUs...that go into video game devices."