NEW Sony cell chips are smaller and more powerful, using nanometer technology.

Bloomberg

TOKYO—SONY Corp., the world’s largest maker of video-game consoles, said it will cut spending on chips to help the business turn profitable next fiscal year.

                Yutaka Nakagawa, Sony’s chip business chief, said Tuesday the company will “significantly” reduce investments on semiconductors such as those that run PlayStation 3 consoles.

                The plan to cut spending eased concern that costs for the main cell processors for the PlayStation 3 are eroding earnings. Sony said it may also contract with outside companies to make the chips. Lower costs would help Sony compete against cheaper video game players from Nintendo Co. and Microsoft Corp.                             

                “It’s a positive development for Sony and a good move for any company that doesn’t have much spare capital to spend,” said Fujio Ando, who helps oversee $365 million at Chiba-Gin Asset Management Co. in Tokyo.

                Sony plans to spend ¥300 billion in three years to March 2010 on semiconductors, compared with the ¥500 billion estimated for the three years ending March 2007, Nikkei Inc. reported Tuesday, without saying where it got the information.

Profitable next year

NAKAGAWA declined to disclose spending estimates or timeframes for the reduction. Sony’s semiconductor business will become profitable in the year ending March 2008, after posting losses the previous fiscal year, he said.

                The change in spending “confirms a more prudent approach by Sony to capital allocation, one that previously has been focused on Sony needing to build everything itself,” David Gibson, an analyst at Macquarie Securities Ltd. in Tokyo, wrote in a report dated Tuesday. He rates the company “outperform.”

                Sony said it is “seriously considering” outsourcing production of future cell chips to improve earnings. Macquarie’s Gibson said Chartered Semiconductor Manufacturing Ltd. and Toshiba Corp. would benefit should Sony outsource cell  manufacturing. 

45-nanometer chips

THE new cell chips will be made using 45-nanometer technology, compared with 65 nanometer now, making them smaller and more powerful, Nakagawa said. A nanometer is a billionth of a meter and measures the distance between transistors in a chip. A smaller gap means more transistors can be packed on each wafer, reducing manufacturing costs. Mass production of chips currently ranges between 65 nanometers and 180 nanometers.

                Separately, Credit Suisse Securities (Japan) Ltd. raised its rating on the Japanese consumer electronics industry to “overweight” from “market weight” Tuesday, citing improving earnings on a weaker-than-expected yen, cost reductions and slower-than-estimated declines in television prices. Sony is the world’s second-largest consumer electronics maker after Matsushita Electric Industrial Co.

                “We view Sony most highly in terms of investment appeal,” Koya Tabata, a Tokyo-based analyst at Credit Suisse, wrote in the report. Strong sales of electronics and release of PlayStation 3 in Europe in March will help boost earnings, Tabata, who rates the company “outperform,” said.

                Sony overtook Sharp Corp. as the world’s largest liquid-crystal display television maker in terms of revenue, market researcher NPD Group Inc. said Tuesday.

                The company Tuesday stuck with an October forecast for chip sales to rise 57 percent to ¥770 billion in the year ending March 31, which would be equivalent to 9.4 percent of overall revenue.

Sony will cut spending on chip for a profitable fiscal year

TOKYO—SONY Corp., the world’s largest maker of video-game consoles, said it will cut spending on chips to help the business turn profitable next fiscal year.