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Improving profitability in Sony's chip division is important for the Tokyo-based electronics and entertainment conglomerate, which targets an operating margin of 5 percent in the business year from April, up from an estimated 0.7 percent a year earlier.
Sony Executive Deputy President Yutaka Nakagawa told reporters that investment in chips will come down significantly from the $3.8 billion (460 billion yen) allocated over the three previous business years.
Sony is already producing the Cell chips, dubbed "supercomputer on a chip," using 90- and 65-nanometer circuitry for the PS3, and plans to move onto the 45-nanometer variety by 2009. A nanometer is one billionth of a meter.
Narrower circuitry makes the size of a chip smaller and helps manufacturers cut per-chip production costs.
Components such as the Cell chip and a Blu-ray DVD player have driven up the PS3 price. Lower costs for the high-speed chip are expected to help the new game machine better compete with Nintendo's Wii and Microsoft's Xbox 360.
But finer circuitry also means heavier initial investments for chipmakers as costs for chip-making equipment balloon.
"We tentatively plan to start commercial production of 45-nanometer 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.
"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 (such) chip production," Nakagawa said.
These chipmakers include Taiwan Semiconductor Manufacturing Co. and United Microelectronics, the world's largest and second-largest contract chipmakers, respectively.
"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," Nakagawa said.
Revenue at Sony's chip operations is expected to grow 57 percent to $6.35 billion during the current business year that ends in March, accounting for 9.4 percent of its estimated group sales, although part of its chip sales are made through in-house transactions.
Sales have been driven by brisk demand for chips used in its game machines as well as in digital cameras, Nakagawa said.
Sony's PS3 sales have so far paled in comparison with the rival Wii.
The Nintendo machine outsold the PS3 nearly three to one in Japan last month, according to video-game magazine publisher Enterbrain, which blamed PS3's higher price tag and a shortage of game titles.

Story Copyright © 2007 Reuters Limited. All rights reserved.



Source:Sony to shrink future spending on PS3 chips | CNET News.com