VIS Entertainment, the Dunfermline-based computer games company headed by whizz-kid Chris van der Kuyl, has signed a deal with software giant Microsoft to develop computer games for its new Xbox games console.

This is the second strategic

partnership to be clinched by Vis this week. On Monday it set up a #4m joint venture with cable giant Telewest to develop and commission games specially adapted

for interactive digital television sets.

Both deals come as Vis eyes up a possible flotation following the appointment of merchant bank HSBC six weeks ago to advise on the company's future.

The naming of Vis as a preferred supplier to Microsoft's new games division, along with

another 150 designers world-wide, was timed to co-ordinate with the start of the Tokyo Game Show - one of the world's key trade shows for computer games.

Microsoft unveiled the Xbox in March and aims to start selling it next year in time for the Christmas buying season. It is designed to compete with Sony's Playstation, which dominates the market at present.

Nearly 50 million people already play computer games

on specialist consoles and the number is growing fast.

The US software giant aims to develop about 30% of the games for Xbox itself. The rest will

be bought in from approved

suppliers.

It is aiming for a big bite of the burgeoning computer games

market. According to economic forecaster Data Monitor, this will nearly double in value to $28bn (#20bn) over the next three years from $15bn (#10.5bn) at present.

Vis is the only Scottish games company to be designated as an Xbox partner so far.

Julian Morse, computer games analyst at Beeson Gregory, said: ''All these companies involved in Xbox with Microsoft should be in a win-win situation in terms of turnover, share-price and profits.

''With players such as Red Lemon and Vis, Scotland is

carving out a world niche as a computer games developer. But as with authors, games companies are only as good as their last 'book'. Hedz didn't do too well for Vis, while Earthworm Jim 3D - which was a good franchise - didn't do too well for them either''.

Andy Campbell, the managing director of Red Lemon, said his company was hoping to become an approved supplier of games for Xbox shortly.

''The Xbox list is not exclusive and we're talking to Microsoft about it,'' he said.

Vis was set up by 31-year-old van der Kuyl four years ago and has grown rapidly with the help of cash from venture capitalist 3i and entrepreneur John Boyle, among others.

Valued at #32m after the last round of fundraising in March, the company now employs 110

people in Dundee, Dunfermline, Glasgow and the Isle of Wight. Yesterday Vis played down reports that it was about to list on the Stock Exchange.

''Flotation is merely one option,'' said a source close to the company, noting that the Fife company can still draw on a #20m line of credit with Bank of

Scotland.