Yesterday Sony unveiled the PS3, and at least on paper it seems to outclass the Xbox 360 in terms of teraflops and support for 1080p, and it's going to have a next-generation optical drive which the 360 isn't going to have-

No… we just haven't announced anything yet. Sony may have announced a non-standard drive last night. We just haven't announced anything.

There are going to be some more surprises on the hardware end?

Could be! Look, for us to say we're going to go through a whole generation without an HD capacity drive-I think that would be naive to assume that we'll be sitting here at the end of the Xbox 360 generation and no such device will have shipped. On the other hand, we haven't announced anything, Sony's announced something, and who knows? You know, they could have announced support for Beta instead of VHS. We're trying to watch and really be agile on our feet, relative to the issues between HD DVD and Blu-ray. As a platform provider we're trying to make sure our software standards are well-supported in both places. As the provider of the Xbox, we're sitting there saying, "Look, we're shipping NOW." This was not an option. Neither one of these things were an option for our first shipment, so it's kind of a moot point. Sony's saying, "Who knows what the standards are, but we're going to commit to what we're going to commit to." I think we can be nimble and agile and that'll be important.

So there's a possibility of an Xbox 360 Mark II coming along?

I won't hypothesize on how we get there. I just think it's just wrong-minded to think that somehow we'd go a whole generation without this. We're not going to be sitting here five years saying, "Oh jeez, we don't have HD DVD-type storage." But we're going to out perform Sony in a lot of things. We're faster on integer than they are, they're faster on floating point than we are. To sit there and just take a look and say "Well, they're just faster…" Well, we've got three cores, they've got one core. Actually, we were pleasantly surprised by what they announced. They're later, and yet we think we're going to outperform them on a bunch of stuff. We think we've got better balanced system performance than they do. Now, when you're the second guy of course you're going to be faster. We sit there and say "There are some things [on the PS3] that are faster… [whispers] but there are some things we're faster on, too."