DigiTimes says sources in Taiwan's optical disc drive (ODD) industry have cofirmed that Microsoft is currently in the process of selecting manufacturing partners for the second-gen console, and if development and certification proceeds smoothly, the company could launch the new Xbox 360 in the first half of 2007.
Microsoft has already announced an external HD DVD drive for first-gen Xbox 360 consoles, which is scheduled to launch later this fall. If the DigitTimes report proves true, an Xbox 360 with an internal HD DVD drive would seem to be a direct response to Sony's upcoming PlayStation 3, which launches this November with a built-in Blu-ray drive.
Microsoft has thus far remained mum on this most recent round of rumors, but two months ago, the company vigorously denied that it was developing a second-gen Xbox 360 with HD DVD support.
We'll keep you posted as this story develops...