Reports claim the next generation of Xbox will use a processor designed by AMD. It will make it more likely that existing PC titles will come to the Xbox, but could also make backwards compatibility difficult.

Anonymous sources quoted by Bloomberg claim the new Xbox (widely expected to be dubbed the 720) will use an AMD system-on-a-chip design combining a CPU and graphics chips. The main processor will be in x86 format, as seen in the vast majority of desktop and portable PCs.

Not only will that mean porting existing PC titles will be easier, but it would mean companies would face fewer costs in developing future games for both the PC and new Xbox. Whether they’ll pass on those savings to customers is debatable at best, but it could mean more titles that aren’t guaranteed bestsellers getting an outing on both platforms.

The other big consequence is that a switch to an x86 format would likely mean existing 360 discs would be incompatible with the new console, something that could be a serious deterrent to those with large game collections. One solution would be for Microsoft to set up — or allow others to set up — a service like OnLive for accessing 360 games hosted on a remote server. The problem with this is that Microsoft would have to choose between eating the cost, or asking people to pay to play games they’ve already bought.

As you’d expect, Microsoft is remaining silent about the claims. AMD hasn’t commented on the report, though it has previously said it wants to be less reliant on the PC market.

At the moment, not only is all talk of the new Xbox unofficial, but we don’t yet have a confirmed date of when it will be announced. It appears Microsoft is currently deciding between launching it at E3 in June or holding a special event in the weeks beforehand.