If Microsoft is secretly readying a new Xbox to succeed the Xbox 360, then surely Sony must be working on a PlayStation 4?

Speculation is rife that the next console battle will be fought around 2011-2012. This is when Crytek’s CEO Cevat Yerli and industry analyst Colin Sebastian believe that a potential Xbox 720 and PS4 could appear.

Recycling PS3 for PS4

To imagine what a PS4 might be capable of we should look at what the current PS3 doesn’t have or doesn’t do well. For starters, Sony will need to closely integrate the hardware and software development for its next console.

According to SCEA’s CEO Jack Tretton: “The hardware guys developed the [PlayStation 3] fairly independently, then dumped it onto the software guy’s lap, effectively saying ‘do something with it.’”

Considering that Sony spent around $3 billion developing the PS3, it seems likely that it will use an improved version of the Cell processor for a PS4. IBM has already released an improved version of the Cell for its blade servers. The PowerXCell 8i is a 65nm chip, with support for 32GB of DDR2 memory and eight fully-functional SPEs (compared to seven on the PS3).

The advantage of recycling the Cell is that Sony could retain a familiar development environment and use existing code libraries. The modular design of the Cell architecture could also allow extra Synergistic Processing Elements (SPEs) to be added to future chips. Twenty or more SPEs might be possible on a single 32nm Cell processor.

And if increasing the on-chip SPEs isn’t an option in the proposed 2011-2012 time frame, then a PS4 could incorporate multiple Cell chips. IBM’s Cell roadmap includes a PowerXCell 32iv, which appears to feature four PPEs (Power Processor Elements) and 32 SPEs, ie four Cell chips running in parallel.

Inside the PlayStation 4

If the PS4 is a revamp of the PS3, we’re likely to see some obvious technology upgrades – 802.11n to replace the existing 802.11b/g chipset; an external power supply (to reduce the size of the box and to improve cooling); a massive hard disk; new graphics processor and an increase in the onboard memory.

The memory architecture in the PS3 splits 512MB equally between graphics and application use and it’s been suggested that this limits developer freedom. You’d expect the PS4 to address this issue, giving developers more dedicated memory in which to load game levels. Although it’s worth pointing out that the PS3 (and any future Cell-based consoles) can use the SPEs for maths-intensive tasks like physics.

New graphics processor

What about a replacement for the PS3′s NVIDIA-built RSX graphics processor? We’ve already speculated that Microsoft could use Intel’s general purpose Larrabee chip in its next Xbox to handle real-time physics and AI. Rumours also suggest that Intel is pimping Larrabee to Sony for the PS4.

Like any Xbox 360 replacement, the PS4 is also going to have a much bigger hard disk. This will be in readiness for a wealth of downloadable content that will include games, demos, music, movies and TV shows. A terabyte HDD isn’t out of the question. And in a world that will increasingly be looking to online services for content, does any PlayStation 4 still need a Blu-ray drive?

A PS4 without Blu-ray?

While the PS3 was instrumental in helping Blu-ray beat off HD DVD, there’s a strong argument for dropping an optical drive from the PS4 altogether. Console owners are already downloading gigabytes-worth of game demos, video trailers, full-length movies and TV shows. With a giant hard disk in the PS4, games could simply be piped straight to the console on release day; long install/level load times would be eliminated.

Along with the Cell processor, the Blu-ray drive is one of the PS3′s most expensive components. The PS3′s high price has forced it into third place behind the Nintendo Wii and Xbox 360. Sony will be keen not to price itself out of the next console battle.

As Acclaim boss Dave Perry recently claimed: “Because of the cost of making the PlayStation 3 and because they sold it at a loss, Sony basically has pretty much no chance of making money on the PS3, because it’s lost more money than they made during the entire peak of the PlayStation 2 – it’s not going to happen again for Sony.”

Sony can’t simply slash its prices like Microsoft has recently. And Blu-ray is partly to blame. Billy Pidgeon, an analyst at market researcher IDC points out: “Blu-ray licensees would be threatened by pricing the PS3 below stand-alone Blu-ray players. The PS3 is a bit challenged on that side.”

Chasing the dream of a digital hub

Do consumers really want a PlayStation 4 that does everything? Sony’s next console needs to be a machine that plays the best games. Just like the PS2 did. The PS4 could go one of two ways – a premium all-in-one box that offers Blu-ray, integrated playTV and a much larger hard disk; or a pure games machine, stripped of its expensive technology in favour of mass market appeal?

Whatever the PS4 looks like, the final question to be asked is: when will it launch? Sony’s Kaz Hirai has already given us a hint: “If you look at the history of the way we’ve managed our console business,” he said, “we always try to hit a 10-year life cycle “

That might put any PS4 launch back to 2016. But when you consider that the PS2 is still chugging along in the shadow of the PS3, a PS4 could easily sit alongside and overlap the existence of the PS3.