Applied Microsystems Corporation (Nasdaq: APMC) has signed a letter of intent with Microsoft Corporation (Nasdaq: MSFT) to develop and manufacture DVD-emulation technology for inclusion in Microsoft’s XDK (Xbox Development Kit), the development platform that allows game designers to optimize games for Xbox, Microsoft’s future-generation video game machine.

“Working with Applied is a key part of our strategy to give developers the best and easiest development platform of any next-generation console, ” said J Allard, Microsoft’s general manager of Xbox. “We are investing a great deal in our development program to allow them to exploit the technological horsepower of Xbox and create jaw-dropping games.”

According to Steve Verleye, president and CEO of Applied Microsystems, the letter of intent specifies that Applied provide both emulation hardware and software applications. Complete terms and conditions of a final agreement are being negotiated.