Singaporean contract chip maker Chartered Semiconductor Manufacturing will produce a 45-nanometer (nm) processor designed for video-game consoles, probably an upcoming version of the processor used in Microsoft's Xbox 360.

"We have customers' activity for products in the CPU space that goes into a video-game device," Chia Song Hwee, Chartered's president and CEO, said when discussing the company's 45nm manufacturing plans with analysts during a recent conference call.

Chia didn't name the CPU customer but was likely referring to Microsoft, which uses Chartered to manufacture its Xbox 360 processor.

The 64-bit Xbox 360 processor is a custom chip based on three 3.2GHz Power PC cores. Chartered has so far produced 90nm and 65nm versions of the Xbox 360 processor for Microsoft using a SOI (Silicon-on-Insulator) process licensed from IBM Corp.

The numbers that describe each chip version refer to the process technology used to make them, and describe -- in billionths of a meter -- the average size of the smallest features that can be created on a piece of silicon. Smaller is better when it comes to chips and moving to a more advanced process technology offers several benefits.

In the case of the Xbox 360 processor, the most important benefits may be size and power. A more advanced process allows chip makers to shrink the size of a chip, thereby increasing the number that can be produced on a single silicon wafer and reducing unit production costs. When the smaller chip is run at the same clock speed as the larger version, it generally consumes less power and therefore generates less heat.

Since the Xbox 360 is sold for less than its manufacturing cost, cutting the cost of the processor -- typically the most expensive component inside a computer -- is good for Microsoft, allowing the company to reduce the console's price or cut its losses on each console sold.

Chia said the design of the 45nm video-game processor is not yet complete, and hinted that production of the CPU -- as well as other products designed for the 45nm process --- is not likely to begin until late 2008 or early 2009.

"As 65nm just started production in the last two quarters, you would expect 45nm to come on stream about 18 months from that timeframe," said Chia, referring to when Chartered expects to begin production with the 45nm processor.