In 1997, Sega of Japan tasked two engineering teams to compete for the design of the Dreamcast. Internally, Sega's President Shoichiro Irimajiri assigned Hideki Sato, who had designed the Saturn, to come up with a chipset design. Externally, Irimajiri created an 11-man "skunkworks" team outside of Sega to create a competing design, led by IBM alumnus Tatsuo Yamamoto; that project was codenamed Blackbelt.
Sato chose the Hitachi SH4 CPU architecture and VideoLogic's PowerVR2 graphics processing unit, manufactured by the Japanese company NEC. "The first version of the Dreamcast was water-cooled; they had a non-moving part, water-based cooling system. It was called Dural," said former Charles Bellfield, former Sega VP of communications (1998-2000) and VP, strategy & corporate affairs (2000-2003).
Yamamoto, based in the U.S. and initially kept secret from Sato's team, chose the IBM/Motorola PowerPC 603e, but was later asked to use the Japanese-made Hitachi SH4, and entered into a contract with the American graphics card maker, 3Dfx, to use a custom version of its Voodoo 3 card as the graphics processor.
"I was at that meeting on July 4, 1997, in Haneda, in the Sega Tokyo offices, where we were sent to present the PowerVR technology," explained Bellfield who, before working at Sega, was a brand manager at NEC Electronics.
"We lined up a series of games running on the PowerVR technology on PCs, which included Tomb Raider, a game called Ultimate Race from Kalisto, and Looking Glass' Flight Unlimited. The presentation basically messaged that the PowerVR technology would deliver high performance at a low cost."
According to Bellfield, part of the selling point of PowerVR was its tile-based rendering solution. Polygons that were not seen on the screen were not rendered, which reduced CPU overhead. The PowerVR solution, unconventional for developers at the time, in theory was a high performance and low cost solution. Bellfield added: "Sega's relationship with NEC, a Japanese company, probably made a difference too."
The Dreamcast also included a modem. However, Sega executives internally argued over whether or not to include it. Sega's decisions on the system architecture and the modem were based on a number of factors ranging from industry ties with chip manufacturers to the ratio/cost from a given manufacturer.
"It turned out they had two different projects going on, but they didn't tell us that," said Bing Gordon, now a partner at the venture capital firm Kleiner Perkins Caufield & Byers; from 1998 to 2008, he was chief creative officer at EA. "They told us they were trying to decide if they would include a modem or not. Our advice was, 'You've got serious competition [referring to Sony and Nintendo], so a modem is a really good idea. If you do a modem, we'll build a whole product line for it.'"
In 1996, 3Dfx began building wide acclaim for its powerful graphics chips, one of which ran in arcade machines, including Atari's San Francisco Rush and Wayne Gretzky's 3D Hockey. In 1997, 3Dfx went public, announcing its IPO. In the process it revealed the details of its contract with Sega, required by U.S. law. The announcement, however, had undesired effects. It publicly revealed Sega's blueprint for a new, unannounced console, and angered executives at Sega Japan.
Numerous reports indicate Yamamoto's Blackbelt chipset using the 3Dfx chips was the more powerful of the two. Sega executives, however, still fuming at 3Dfx, severed their contract with the chip maker. (Soon thereafter, 3Dfx sued Sega and both companies settled out of court.)
In the end, Sega of Japan selected Sato's design, codenamed it "Katana," and announced it publicly on September 7, 1997. To this day, it's unclear whether Sega would have chosen the Blackbelt 3Dfx solution, had 3Dfx not revealed Sega's plans publicly.
"They said they looked at 3Dfx, but decided against it," said Gordon. "They went with some other 3D chip that we had never heard of, and they went with a weird processor. We looked at this and asked ourselves, 'Why did they make these choices? It's gotta be some kind of political thing because these are dumb choices.'"
"I felt the US version, the 3Dfx version, should have been used. Japan wanted the Japanese version, and Japan won," said Stolar. "I lost that argument."