"For the system's ambitious third iteration, though, Sony wanted an entirely new processing architecture. Most computer processing chips are built on the foundations of the chips that are already in use. Designing a new chip from the ground up is a costly and time-intensive process. So in 2001 Sony partnered with Toshiba and IBM to create the so-called Cell processor -- a chip so powerful that it would redefine PC-scale power.

David Shippy, as it happens, was in charge of designing the brains of the Cell, the processing core. In "The Race for a New Game Machine," he and his co-worker Mickie Phipps tell the story of the whole effort to build the Cell. They also describe how the project went off the rails, ending up with IBM engineers creating the processing chips for two rival videogame consoles and, along the way, delivering to Sony Corp. one of its greatest business failures.

When the companies entered into their partnership in 2001, Sony, Toshiba and IBM committed themselves to spending $400 million over five years to design the Cell, not counting the millions of dollars it would take to build two production facilities for making the chip itself. IBM provided the bulk of the manpower, with the design team headquartered at its Austin, Texas, offices. Sony and Toshiba sent teams of engineers to Austin to live and work with their partners in an effort to have the Cell ready for the Playstation 3's target launch, Christmas 2005.

But a funny thing happened along the way: A new "partner" entered the picture. In late 2002, Microsoft approached IBM about making the chip for Microsoft's rival game console, the (as yet unnamed) Xbox 360. In 2003, IBM's Adam Bennett showed Microsoft specs for the still-in-development Cell core. Microsoft was interested and contracted with IBM for their own chip, to be built around the core that IBM was still building with Sony.

All three of the original partners had agreed that IBM would eventually sell the Cell to other clients. But it does not seem to have occurred to Sony that IBM would sell key parts of the Cell before it was complete and to Sony's primary videogame-console competitor. The result was that Sony's R&D money was spent creating a component for Microsoft to use against it.

Mr. Shippy and Ms. Phipps detail the resulting absurdity: IBM employees hiding their work from Sony and Toshiba engineers in the cubicles next to them; the Xbox chip being tested a few floors above the Cell design teams. Mr. Shippy says that he felt "contaminated" as he sat down with the Microsoft engineers, helping them to sketch out their architectural requirements with lessons learned from his earlier work on Playstation.

The deal only got worse for Sony. Both designs were delivered on time to IBM's manufacturing division, but there was a problem with the first chip run. Microsoft had had the foresight to order backup manufacturing capacity from a third party. Sony did not and had to wait another six weeks to get their first chips. So Microsoft actually got the chip that Sony helped design before Sony did. In the end, Microsoft's Xbox 360 hit its target launch in November 2005, becoming its own success. Because of various delays, the Playstation 3 was pushed back a full year."

Source: http://online.wsj.com/article/SB123069467545545011.html

Not sure if this has been posted, but I found it a little funny. Microsoft engineering may not be the greatest, but their business decisions are top class.

I thought this had been disproven...

The PowerPC was not created for the 360. It was an existing processor. The Cell was new, it was different, and it is most probably more powerful.

The Cell is not new. Although the architecture itself is new, the instruction sets and many other components are based on the POWER architecture. Why do you think you can run a PowerPC linux distro on the PS3? They are very similar. Think of it like a pentium 4 and a Core 2 Duo. They can run the same software and have similar instruction sets, but they are different architectures. Although Microsoft does not use any of the SPEs in the Cell CPU, the PPE used in Xbox 360 and PS3 are practically identical. Sony has 1 PPE and 7 SPEs and Microsoft has 3 PPE.

This is old news, but now confirmed in a new book by IBM employees. If you ask me M$ did well. Sony coughed all that money up and M$ didnt pay a penny, other than production costs.