The rumours were true: ATI is to power Microsoft's next-gen Xbox2 console. Under the just-announced deal, ATI will produce the core graphics processing unit for the next iteration of video game consoles.

Shares of the Markham, Ontario-based graphics chip maker jumped as much as 13 percent to their highest level since March, 2002 ...

Nvidia's stock fell 58 cents, or 3.5 per cent, to $16.20 on Nasdaq with almost 13 million shares traded.

Sounds like the stocks have shuffled their feet already; but this can only spell bad news for nVidia. Currently Xbox royalties are nVidia's major source of income, with sales of its consumer-level PC graphics cards faltering against ATI's newer, cheaper technology.