Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) may be the leading competitors in video game consoles, but apart from any strategy to leverage them into a broader yet unproven entertainment platform, the machines themselves bleed money. Many investors believe that the inside of the boxes contains the more tangible return.

So they pay attention to reports that Microsoft will use IBM (NYSE:IBM) chips in its new Xbox expected in 2005, and Taiwan's SiS will make the chipsets. Which leaves Intel (NASDAQ:INTC) outside. Does it matter?

First, chips vs. chipsets. According to Whatis.com:

"A chipset is a group of microchips designed to work and sold as a unit in performing one or more related functions. A typical chipset is the Intel 430HX PCIset for the Pentium microprocessor, a two-chip set that provides a Peripheral Component Interconnect bus controller and is designed for a business computer that 'optimizes CPU, PCI and ISA transactions for faster, smoother multimedia performance in video conferencing, playback, and capture applications. This chipset includes support for the Universal Serial Bus (USB)."

What else is in the chipsets besides IBM products? We reported in August that the Xbox 2 will sport graphics processors designed by ATI Technologies (NASDAQ:ATYT), not Nvidia (NASDAQ:NVDA), on top of an ATI-Nintendo development deal in March potentially leading to ATI graphics in the next GameCube.

Meanwhile, IBM has already scored with Sony (NYSE:SNE) and its PlayStation3 due in 2004. IBM, Sony, and Toshiba have developed a new chip technology called Cell that will reportedly include Rambus' (NASDAQ:RMBS) next-generation Redwood memory. Sony is also reportedly in discussions with Nvidia concerning the graphics chipset for the PS3 after Sony used an in-house graphics engine for the PS2.

But does this make a difference to any supplier's top line? With Sony projecting PlayStation2 sales of 20 million through next March and Microsoft forecasting Xbox sales at 14.5 million to 16 million by the end of its fiscal year next June, chip revenues from the current or next-generation game consoles won't have much impact on an Intel with $29 billion in trailing-12-month sales or IBM with $87 billion. The impact on an ATI Technologies ($1.4 billion) or Rambus ($112 million) is much greater.

There could be more than plain old revenues, though, because it certainly gives IBM's Cell technology bragging rights over Intel for most advanced technology -- since that's what customers expect from the ever-more powerful game consoles. And in the market, perceptions matter.

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