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Microsoft has already proved it can outsell Sony, so its biggest concern next generation isn't Sony and PlayStation 4 - it's Apple and Google.
It's on the case. The new Metro dash and apps are turning the 360 into a device capable of halting those company's living room aspirations, while the next machine will be ground-up designed to be the centre of your home entertainment.
The real story is, of course, inside the box, and in Microsoft's research labs around the world.
Regular Microsoft secret-exposer MSnerd ties the next Xbox to the internal project 'Loop.' This is not the first time that codename's been applied to an Xbox prototype - we know 'Loop' was an Xbox device once before (it was never released), and this lends the rumour credibility as it's insider knowledge. Unless it debunks it completely because it's an out-of-date whisper...
MSnerd also reckons that like 360 the next Xbox has a multi-core central processing unit (CPU), but this time with a 'main' core supported by secondaries to compute graphics needs, AI, Kinect and all other stuff Microsoft are using to differentiate this from the 'old' gen.
For months the new CPU was rumoured to be 'Obed,' but our own sources suggest otherwise - take tech site semiaccurate.com seriously when it say the next CPU is 'Oban'. Our sources confirm the site was the first to get the name right, which strengthens its claim that Oban is finished and due to enter production in December 2012.
Oban is thought to be a PowerPC-based processor from IBM - similar to the 360's CPU - but there's good evidence to suggest AMD is involved with the next Xbox. In either case, this processor is built by ATI, which means 360's backwards compatibility problems will not be repeated.
All sources come up short on just how powerful Oban and ATI's new graphics processing unit (GPU) is, but both must surely be tough enough to run Epic's Samaritan demo from 2011's GDC. Running on a heavily modified version of Unreal 3, the demo showed near-photorealistic visuals, incredible lighting effects and superb liquid physics.
And don't underestimate Epic's clout. When Microsoft was designing the 360 it was Epic's Gears of War demo which forced MS to increase RAM from 256Mb to 512Mb, and that was then. This time Epic's Euro-boss Mike Gamble has called Samaritan a "request to the hardware manufacturers for what we'd like to be able to do." Where Epic's Unreal Engine leads, the hardware simply has to follow.
Historically, Sony has always built the most powerful machine: PS2 was more powerful than Dreamcast, PSP more
powerful than DS, PS3 more powerful than 360, and Vita more powerful than 3DS.
Don't expect the next generation to be any different - Sony won't be bundling an expensive Kinect sensor in every box, and PS4's processor won't need to dedicate time to Kinect processing. PS4 will almost certainly overpower the next Xbox.
But you don't win console wars with power. You win with ingenuity. The Wii and DS proved platform manufacturers don't have to knock out the beefiest machine to win. The 360 beat PS3 and the DS beat PSP, despite Sony's powerhouse processors.