M-Systems, best known for its DiskOnKey line of flash drives, which attach to a PC's Universal Serial Bus port, said in a statement that it has signed an agreement with Microsoft to develop "customised memory units for future Xbox products and services."
Ronit Maor, chief financial officer at Israel-based M-Systems, said the company could not discuss details of the contract. But Maor said the devices under development would be of significantly higher capacity than the 8MB Xbox memory units Microsoft currently sells to save game and user data. "What we're going to offer for the Xbox doesn't currently exist," Maor said.
The M-Systems announcement comes shortly after Microsoft revealed plans for expanding Xbox Live, the online game service it runs, to include limited online storage capabilities. The combination has bolstered speculation that Microsoft will drop the hard drive from the next version of the Xbox to cut production costs for the money-losing console.
Microsoft representatives declined to comment on the company's plan for next-generation Xbox hardware.
Jay Srivatsa, a senior analyst at research firm iSuppli, said the Xbox hard drive so far has been used mainly for ancillary functions like saving progress in a game, not to improve the way games work. Sacrificing the hard drive could be a relatively painless way to trim $10 (£5.31) or $20 per unit from production costs. "I can see why they'd attempt to do that -- the hard disk usage on the current Xbox has been pretty minimal," he said. "At some point, this has got to be a profitable business for Microsoft. They have to draw some lines; look at what can they take out."
The current Xbox will gain another storage option late this year, when Microsoft releases an "extender kit" for attaching the console to a PC running Windows XP Media Centre, noted P.J. McNealy, an analyst at American Technology Research. That and expanded online features could obviate the need for a hard drive, he said.
"If the network is robust enough to handle some of the processing, and you have a fast-enough connection, you can push some of the functionality of the hard drive back onto the network," McNealy said.
Richard Doherty, president of research firm The Envisioneering Group, said adding recording functionality to the Xbox's DVD drive would be a cheaper way to provide storage than a hard drive and would rob hackers of one of their primary tools for making the Xbox perform unauthorised tricks. "The hard drive became a liability in relation to those units that were hacked," Doherty said.
