The San Jose Mercury News is this week revealing that has created a smaller and potentially more reliable chipset for the 360, which will also help the company cut production costs. The Californian newspaper reports that the new chipset is called 'Falcon', and it boasts an IBM microprocessor and an AMD/ATI crafted graphics chip, both made using a 65-nanometer production process.

We're told the original chipset was crafted using a 90-nanometer process and that this smaller model will lower the risk of overheating and also the cost of making the games console - which has suffered a number of well-publicised reliability lately. Microsoft were in fact prompted to extent their warranty to three-years even for early adopters, owing to the number of launch consoles now beginning to bite the dust.

Several watchers have predicted an price cut in order to help compete with the freshly slashed price of the PlayStation 3, and the move to the Falcon chipset will no doubt aid Microsoft in this area.

Some experts predict an Xbox 360 price cut at this year's E3 - while many predict a move of some kind this summer. The new chipset could be a sign that this will arrive sooner rather than later.

By Luke Guttridge