Tech-savvy recipients of an Xbox 360 this season might want to take it apart and solder in a few modification chips, maybe even convert the gaming console into a PC, if past tinkering with the original Xbox is any indication. And consumers with new mobile phones might be looking for someone clever to give them a way to transfer all their contacts from their old phone.

Reverse engineering hardware is a time-honored tradition, made famous in the early days of the semiconductor industry. This coming year, however, there could be more efforts to restrict this practice -- a shift that would affect both hackers and general consumers, who might want the freedom to, say, switch between different mp3 players and digital video recorders for their TVs.

Of course, attempts at restricting what can be done with hardware in part have to do with protecting copyrighted material. Last week, for instance, three Californians men were arrested for making and selling Xbox consoles modified to run pirated games, adding to the list of crackdowns under the Digital Millennium Copyright Act (DMCA), a law that, in part, prohibits circumventing copyright protection technology. The Xbox hack was ultimately made possible by reverse engineering the game console's chip set.

The most disturbing aspect of reverse engineering, however, at least for businesses, is that the concept can easily be linked to hackers and garage cowboys looking to modify their devices without worrying about the law.

But reverse engineering is also essential for companies competing in the semiconductor industry.

Indeed, some firms specialize in analyzing a new technology and selling reports on the results to industry players. Last month, for example, Chipworks, a Canadian reverse-engineering company, announced it had analyzed the key chips of the Xbox 360.

Chipworks has reverse engineered thousands of chips in its 12-year history, according to the company's senior technology analyst, Dick James. And they sell these reports to all the major manufacturers worldwide, he says.

The company insists what it does is entirely legal, and not just in Canada. Andrea Girones, patent advisor at Chipworks, points to the U. S. Semiconductor Chip Protection Act of 1984, created to protect companies against the copying of chip designs. It contains a section specifying that reverse engineering a competitor's chips is legal for the purpose of making products compatible with it -- or even for producing a better competing product.

A congressional committee report on the act explains that reverse engineering is "an accepted practice in the semiconductor chip industry whereby a competitor studies and analyzes an existing chip in order to try to make an improved or related version." In short, reverse engineering hardware has been considered legal as long as it didn't involve copying someone's chip design.