Sony Says to Cut Back Sharply on Chip Spending

Posted 13 February 2007 @ 12:37 pm EET     Print     Reprint     E-Mail     Comments

TOKYO (AP) - Sony Corp will cut back on future chip spending and may not produce advanced "cell" microchips used in its PlayStation 3 (PS3) game gear in-house as it seeks better returns on its investments, a senior executive said on Tuesday.

Improving profitability in its chip division is important for the Tokyo-based electronics and entertainment conglomerate, which aims to hit an operating margin of 5 percent in the business year from April, up from an estimated 0.7 percent in the year to March.

Sony Executive Deputy President Yutaka Nakagawa told reporters that investment in chips would come down significantly from the 460 billion yen ($3.8 billion) allocated over the three business years since April 2004. "We tentatively plan to start commercial production of 45-nanometre chips in late 2008 or early 2009. We are going to study carefully whether we should carry out all the capital investment and produce them in-house," Nakagawa said.

Sony is already producing these chips using 90- and 65-nanometre circuitry. A nanometre is one billionth of a meter. Narrower circuitry makes the size of a chip smaller and helps manufacturers cut per-chip production costs. But chip makers are saddled with increasingly heavy initial investments as costs for chip-making equipment balloon.

"When we first offered the PS2, there were no semiconductor companies that were able to make chips for the machine, so we did it ourselves. But now, there are companies that specialize in chip production," Nakagawa said. Such chip makers include Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) (2330.TW) and United Microelectronics Corp. (UMC) (2303.TW), the world's largest and second-largest contract chip makers.

"They are aggressively investing in cutting-edge technology. Our basic understanding is that we probably won't need to do everything by ourselves for next-generation chips." Revenue at Sony's chip operations is expected to grow 57 percent to 770 billion yen this business year to March, accounting for 9.4 percent of its estimated group sales, although part of its chip sales are made through in-house transactions.

Chip sales have been driven by brisk demand for microchips used in its game machines as well as in digital cameras, Nakagawa said. Prior to the announcement, shares in Sony closed up 0.2 percent at 6,000 yen, outperforming the Tokyo stock market's electrical machinery index (.IELEC.T), which lost 0.34 percent.