Chartered Semiconductor has begun development of a 45nm CPU, prompting speculation that the chip could find its way into the Xbox next year. Chia Song Hwee, president of Chartered Semiconductor Manufacturing, told analysts the firm that the market can expect a 45nm chip within 18 months.

He said it already has unnamed customers within the video-games space that are actively seeking a 45nm chip. The company is thought to have worked with Microsoft in the past over the development of 90nm and 65nm chips.

It has already been rumoured for some time that Microsoft is working on an Xbox 360 cost-reduction project, codenamed Falcon. This could see the console's core processor and graphics chip components swapped over from 90nm to a 65nm production process.

Shifting to a smaller geometry could allow the console to deliver the same level of performance, but with less heat as a by-product, which in turn would allow Microsoft to fit a cheaper cooling system than at present.