Intel is pulling out all the stops to get its Larrabee GPUs inside Microsoft's next-gen Xbox (Xbox 720) or another console, according to The Inquirer citing unnamed sources.

As rumours go this doesn't sound too off the mark. MS needs a graphics chip for the Xbox 720, and Intel, along with NVIDIA and AMD, will have suitable parts available. The bigger surprise would be that MS refused to even hear Intel's sales pitch.

But the Inq has gone further to say that Intel is doing everything it can to table an deal MS can't refuse, going so far as offering to do the engineering work on thermal design (hopefully ensuring we won't ever see a repeat of the RROD nightmare), and is even prepared to hand over the rights so that MS can get the chip manufactured at any fab it chooses.

This would give MS a significant advantage in the next-gen console war as it would allow the console maker to book as much fab capacity as it wanted ensuring there is never a shortage of consoles on shop shelves; or it could shop around for the cheapest fab deal, meaning lower production costs and the ability to undercut Sony and Nintendo in the event of a price war.

Overall a deal like this would be very attractive and it's unlikely either NV or AMD would be able to match it. So what's in it for Intel?

The main motivation behind all this for Intel is developer support. The PC graphics card installed base is dominated by NV with around 60% and AMD with 30% (according to the Valve Hardware Survey), and it's just basic economics that games developers will devote most of their resources to design and test their new titles on these two families of cards.

Unless Intel is prepared to put up cash to make it easy and/or worthwhile for developers to spend time writing a Larrabee code-path for their games with a program similar to NV's TWIMTBP, it's going to take a while before games optimised for Larrabee start appearing. At the same time it's going to be hard to recommend gamers rush out to spend their hard earned money on a Larrabee card if there isn't software to take advantage of it. Chicken and egg.

Intel getting Larrabee inside the Xbox 720, or one of the other next-gen consoles, would change this situation. Some developers my not be too happy about having to learn the peculiarities of the new hardware platform, but that won't stop them (see the reaction to the PS3 as an example) because the potential return on investment is much greater in the console market. The promise of being able to port those games over to the PC would be extra icing on the cake.

Overall this news sounds pretty good for gamers. If Larrabee doesn't get in at least one next gen-console, it's going to take a while before we see games that really take advantage of the new hardware except for a few Intel-backed titles. On the other hand, if this deal goes down, it could mean cheaper consoles, more competition in the PC graphics card market, and more games for the PC, even if they are mostly console ports at first.

In other news, Microsoft has announced price cuts for the Xbox 360 in the US market. Effective tomorrow (Sept 5), an Xbox Arcade bundle will set you back $199 USD (cheaper than the Nintendo Wii), the standard package with hard drive, headset etc. will cost $299, and the Elite bundle can be had for $399.