The Xbox 720, codenamed Durango, is reported to have entered the manufacturing stages, although it remains unlikely that the console will be released this year.
Sources familiar with the matter have told gaming site IGN that assembly of the successor to the Xbox 360 has started at the Austin, Texas, branch of Flextronics, a company that has manufactured parts of both former Microsoft games consoles.
The sources say the company created a new testing group separate from the rest of the business, tasked with reviewing software and hardware developments for the Durango. And, now that process has finished, the manufacturing leg has begun, they say.
IGN speculates that, instead of full consumer units, Flextronics is actually producing development kits. Microsoft has already said that it wouldn't be launching a new console at E3, and there's no evidence to suggest that it was telling porkies.
The software giant also released the following statement to the site when asked about the possible start of the manufacturing phase.
"Xbox 360 has found new ways to extend its lifecycle, like introducing the world to controller-free experiences with Kinect and re-inventing the console with a new dashboard and new entertainment content partnerships.
"We are always thinking about what is next for our platform and how to continue to defy the lifecycle convention. Beyond that we do not comment on rumors or speculation."
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Pocket-lint will be at E3 from the beginning of June, when we'll bring you more news about Durango (if there is any) and other Microsoft developments from the show floor.