Sources close to the project, dubbed "Xbox" by company insiders, told The Associated Press Monday that the game consoles themselves would be based on the same components that power personal computers.

The devices will contain hard drives and memory components similar to those of PCs, as well as the same microprocessors that power high-end personal computers. The consoles will also be Internet-compatible, allowing users to take part in multiplayer games with people around the country.

The sources, who spoke on condition of anonymity, said the console and games would be "competitively priced," with the Nintendo 64, Sony PlayStation2 and Sega Dreamcast. The system is not likely to reach store shelves until 2001.

Microsoft declined to comment, other than to note that company chairman Bill Gates is to address the Game Developers Conference in San Jose, Calif., on Friday.

The San Jose Mercury News reported Monday that the game console would feature a 600 megahertz processor and 128 megabytes of random-access memory — features normally found on better-than-average home computers.

A company source said Microsoft discussed the Xbox with a number of independent game programmers and developers and found interest to be high. Many developers have already written games to be run on the Windows operating system, a stripped-down version of which will power the Xbox.

Thus, few changes will be needed to move existing PC games to the Xbox. Microsoft officials think that will give them an advantage by having established games as soon as the system is introduced to the public. It also will save developers time and money.

The introduction of a new gaming platform can be a risky business. Sega Enterprises Ltd. of Japan bombed when it introduced the Sega Saturn back in 1996 and was quickly overtaken by the original Sony PlayStation a year later. Only last fall, when Sega introduced its new Dreamcast machine, did the company make a comeback in the gaming market.

The Sega Dreamcast, which uses software developed jointly with Microsoft, currently retails for $199.99, with games costing anywhere from $29.99 to $49.99 each.

Sony's new PlayStation2, introduced Saturday in Japan, is selling for about $370 and has sold nearly 1 million copies so far, Sony says. Prices for the U.S. version, expected to be introduced in September, have not been set.

The PlayStation2 is the most advanced platform currently on the market. It has the ability to play audio CDs and DVDs and link to the Internet for multiplayer games and basic World Wide Web access.

Nintendo's latest offering, the Nintendo 64, currently sells for less than $100, though the company is planning to release a high-tech successor in time for Christmas.

On the Net: Microsoft site: http://www.microsoft.com