Thursday, October 18, 2007

Sony Forks Over Chip Production To Toshiba

In a joint announcement, the two companies said Sony would transfer to Toshiba its advanced 300-millimeter wafer line fabrication facilities installed in a plant operated by its subsidiary, Sony Semiconductor Kyushu Corp., by the end of March 2008. The facilities house the Nagasaki Technology Center, responsible for developing the Cell line.

While the ownership of the asset would go to Toshiba, Sony and its gaming unit, Sony Computer Entertainment, would jointly participate in the production process as a minority shareholder of 40% in a new joint venture to be set up in April with Toshiba, which would take the remaining 60%.

Sony (nyse: SNE - news - people) shares swooned after initial press rumors of the sale a month ago, but on Thursday afternoon, they were up 30 yen, or 0.55%, at 5,430 yen ($46.57).

The sale allows Sony to pass on the heavy cost of microprocessor development to Toshiba, Japan’s largest microchip maker. It could possibly lower Sony’s procurement costs for Cell chips if Toshiba can reap production efficiencies from commercializing the chips in a broader range of applications. Sony will also be able to invest the proceeds of the sale to bolster its world-leading position in image-processing chips for its digital cameras and cell phones.

For Toshiba (other-otc: TOSBF - news - people), buying the Cell line would give it a huge upgrade in the system chip business, where it is lagging far behind Intel (nasdaq: INTC - news - people) and Samsung (other-otc: SSNLF - news - people), with the anchor of having Sony as a reliable buyer.

Both companies said they would jointly advance the Cell chips to the next stage of technology: Toshiba was reported by Nikkei Business Daily as intending to roll out a 45-nanometer version of the Cell in two years and employing the cutting-edge chips in personal computers and flat-panel televisions.


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