Lite-On is developing built-in Blu-ray disc drives for the Microsoft Xbox 360 game console, according to industry sources, reports the DigiTimes.

Lite-On's shipments of the drives to Microsoft will start in the second half of 2008 and be for a "next-gen" 360 model, the sources said.

Microsoft has decided to switch to BD for its Xbox 360 game consoles after Toshiba announced the discontinuation of HD DVD, the sources said - despite Microsoft officially denying this recently.

Giving the rumours a bit more credibility - Lite-On is currently one of the suppliers of Xbox 360's internal DVD-ROM drives. Lite-On declined to comment, citing client confidentiality.