According to reports by Japanese newspaper Nihon Keizai Shimbun, Ballmer made the remark during a press conference in Japan. Many had expected the new Xbox to arrive a year earlier.
Microsoft representatives refused to confirm the 2006 date. "No date has been announced for future Xbox products or services," the company said in a statement. "Our executives often talk about the future in terms of vision and the possibilities of technology. This is what allows us to be innovative as a company."
Game consoles typically run on a five-year life cycle, which means market leader Sony would be due to replace its PlayStation 2 in 2005.
But Sony executives, while refusing to make any commitments for a PS2 successor, have indicated that the Cell processor expected to power the PlayStation 3 is taking longer to develop than expected. Sony also recently announced an interim update to the PS2, the PSX home-entertainment appliance, that should add some new life to the brand, according to Peter Glaskowsky, editor in chief of industry newsletter Microprocessor Report.
"PSX is intended to gain them some time," Glaskowsky said, adding that a version of the PS2 that supports high-definition TV sets is also likely. "They have a lot of products they can introduce between now and the PS3."
With Sony easing off the accelerator on the PlayStation 3, Microsoft can afford another year to try to squeeze a profit out of the money-losing Xbox, said Michael McConnell, an analyst for Pacific Crest Securities.
"I think that's exactly what's going on--Microsoft has gotten an indication PS3 is going to be a 2006 time frame, and they're taking their cue from there," McConnell said. "I would have expected Microsoft might have tried to front-run them and beat them to the market, but I guess they don't think that's necessary."
The extra year also gives Microsoft more time to negotiate with suppliers, including graphics-chip makers Nvidia and ATI Technologies. Nvidia supplies the graphics processor--the most expensive component in the console--for the current Xbox, but ATI has said it would like to grab the next generation.
McConnell said ATI is likely to win, due partly to lack of interest from Nvidia, which endured months of messy contract arbitration and inventory headaches last year because of the Microsoft contract.
"Nvidia has really given a lot of signals...that they're trying to distance themselves from Xbox2," McConnell said. "That relationship has really soured over the last year...Microsoft in general is just not a very nice partner to deal with. I think the whole experience left Nvidia with a bad taste in their mouth."
ATI will probably be more flexible than Nvidia, McConnell said, but the graphics-chip underdog is still likely to insist on a contract that shields it from Nvidia's experiences, when lagging Xbox sales and a sudden change in the console's configuration left the chipmaker with piles of unsold and unusable merchandise.
"They'll probably have a royalty arrangement, where they don't have some of the inventory risks," McConnell said.
Glaskowsky said Nvida and ATI have an equal chance of getting the deal for the next Xbox, as both will draw from Nvidia's experiences and insist on similar contract terms.
"Microsoft is going to have to make sure that whoever they partner with is going to be happy with the deal," Glaskowsky said.
Glaskowsky added that the Xbox experience hasn't been entirely negative for Nvidia. The design of the Xbox chip was the foundation for nForce, Nvidia's foray into chipsets, PC components that combine graphics with control of basic PC functions.
"Nvidia wouldn't have the nForce products if it wasn't for the Xbox," Glaskowsky said.
