Having been conservative in its last two console releases and realizing success from multi-segment appeal and diverse game interaction, Nintendo sees no reason to break this formula. So going by it, you can expect a direct follow-up to the Wii, codenamed "Wii2."
The rumors coming from IBM R&D labs is that the new chip Nintendo and IBM are testing is another speed-bump and tweak of the previous PowerPC G3-derived cores, codenamed "Raiden," clock-doubled over its predecessor to 1.4 GHz, and sporting the same AltiVec-like vector instructions, 32k/32k L1 caches, and an enhanced 1MB on-chip L2 cache at 45µm.
The GPU in the next-gen Nintendo system is still relatively undetailed at this point, but it is expected to be an Nvidia Tesla C870-derived core, called "Chōjin," which will be a similar conservative jump ahead of the Wii's Hollywood. Also present in the latest prototypes are 2GB of flash storage, two SDHC slots, and 180 MB of system memory. Of course closer to production the industry will expect USB ports and other bells and whistles as well.
In staying conservative Nintendo is missing something: though Sony and Microsoft overplayed their hand in the seventh generation, with ridiculously gigantic specs developers struggle to use efficiently even today, those developers have gotten used to their big, beefy hardware and started to program lazily, depending on huge numbers to run their bloated code fast.
One example of this is the Halo series. Halo 3 started life as an x86 Xbox game but realized they had pushed well beyond the limits of the anemic Celeron-derived, cache-hobbled Coppermine core. With the Xbox 360 looming, it was abandoned for the Xbox. Instead of rewriting for the Power Architecture, however, Microsoft simply wrote a translation wrapper and shipped it.
In stark contrast, the Wii can play GameCube games without emulation since the chips between the two consoles are relatively identical. Nintendo foregoes the problematic layer that the Playstation series has dealt with in bringing old favorite games forward to its new platforms. But while this works out for the value-minded casual gamer, this tight march of CPUs and other specs makes porting between consoles a serious question, let alone fat, bloated lazy programming.
So while it might have been a lot to wolf down this generation, by the next generation Nintendo, in only doing another paltry upgrade, will be way behind what developers expect to be able to do. In other words, games won't get ported from the PlayStation 4 or Xbox 8G to the Wii2, which has already been happening between the PlayStation 3, Xbox 360, and Wii.
Simply put, the upgrade to the Wii's hardware for the Wii2 isn't enough. And it's so tempting to do it anway: IBM is willing to do this measly upgrades because it's cost effective for everyone involved. The development overhead for the Cell and Xenon cost about $65 million and $25 million, respectively, to develop. The cost for creating the Broadway CPU and chipset? Just under US $4 million.
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But it wouldn't take all that much more money to push the Wii2's CPU to 2 GHz and bump system memory to a full gigabyte of RAM, nor would it be out of the question to put more than one CPU on the motherboard. The GameCube was about as fast as a Blue & White Power Mac G3 (ca. 1999). In the Wii itself we're talking about a system about as fast as the Digital Audio Power Mac G4 (ca. 2001), and in the Wii2 something about as fast as the FW800 Power Mac G4 (ca. 2003).
Despite specialized hardware that pushes console rendering capabilities beyond the desktop, the core system at the heart of each console at once well behind the latest desktop technology. Another way to look at it is that each Nintendo console generation is worth about a third of a Mac desktop generation!
Though Raiden currently looks like a clock-jumped Broadway, its core microarchitecture could change. Right now it's got three 32-bit fixed-point units, two 64-bit floating point units, and two 128-bit vector units. One possible tweak would be to replace the 32-bit fixed point units with 64-bit units, which would make Raiden the first truly 64-bit PowerPC 603-derived core.
Other possibilities for Raiden include an extra vector unit and a third floating point unit. Each of those changes would make the chip more complex, more power-huingry, and hotter, and more expensive, things Nintendo isn't likely to see as a useful tradeoff.
The GPU is another thing that can, and should, change significantly. Since Nintendo and Nvidia are working with the Tesla platform, which is really a general-purpose coprocessor and not just for graphics, Nintendo should exploit this power. If early benchmarks are true, Tesla can manhandle graphics, sounds, and physics without breaking a sweat, leaving Raiden to handle game AI and mundane data routing and system clerical duties.
Further rumors of plug-in coprocessor units that come with games, the adoption of QNX for the Wii2's operating system, and distribution of games on high-speed flash cards have yet to be substantiated, but show that Nintendo isn't covering its eyes to possibilities. Let's just hope that the Wii2 as it stands now is just a placeholder and Nintendo is just as seriously considering pumping its ascetic specs up.
At this early stage, one thing remains clear: while Nintendo doesn't have to overdo things to keep its edge, it should think about shifting up another gear or two to close the gap in what developers, who are really the lifegivers of any platform, are expecting in the Eighth Generation.