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December 24, 2010 11:32 am

Toshiba overhauls chips with Asia deals

Reuters
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TOKYO/SEOUL, December 24 - Toshiba Corp will overhaul its chip operations, outsourcing output of some system chips to Samsung Electronics and selling a production line to Sony Corp, as it reduces its non-memory chip exposure.

Toshiba, the world’s number three chipmaker behind Intel Corp and South Korea’s Samsung, is restructuring its chipmaking operations after the business logged an operating loss of Y280bn ($3.4bn) in fiscal 2008 amid the global financial crisis.

For new orders for the next financial year beginning in April, Toshiba will design cutting-edge system chips but will outsource production to Samsung, and maybe other foundries, to avoid costly capital investment outlays.

The rare deal between rivals Toshiba and Samsung, which is expanding into microprocessors, frees up resources for other projects, which analysts see as positive.

“Thanks to this tie-up Toshiba will gain a stronger position,” Yumi Nishimura, a senior market analyst at Daiwa Securities Capital Markets, said after the Nikkei business daily reported the move earlier on Friday.

“In a situation when bigger capacity is required, the burden of capital investment can be too big for one company, so the accord is a positive factor for Toshiba.”

System chips, used in digital devices, have seen explosive demand growth this year, due to rising popularity of smartphones, tablet PCs and web-to-TV devices.

Toshiba said it would sell to Sony its system chip production line in Nagasaki prefecture, a deal which an industry source has estimated at Y50bn. The line produces chips for Sony PlayStation devices and is housed in a factory owned by Sony.

The electronics conglomerate whose businesses also include nuclear plants, also plans to build a new domestic factory to make LCD panels with total investment likely to be over Y100bn, a prefectural government official said on Friday.

Toshiba, the third most actively traded stock on Tokyo’s main board on Friday, rose 0.7 per cent to Y441 outperforming a 0.7 per cent decline in the benchmark Nikkei average.

Samsung’s system chips division has seen strong growth this year, driven by robust demand for mobile application processors and image sensors.

Revenue from foundry chipmakers, who produce chips on behalf of fabless companies such as Texas Instruments, Qualcomm and Nvidia, is set to rise by 42 per cent this year to $28.9bn this year and reach $33.7bn next year, according to research firm iSuppli.

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