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Sony Corp., a major consumer electronics maker, plans to reduce capital expenditures on its own chip development in a bid to improve profitability of the company. The first project that seems to face the axe is development of lower-cost version of the Cell processors for the PlayStation 3 game consoles and outsourcing production of future Cell chips for the PS3.

Sony Executive Deputy President Yutaka Nakagawa told reporters, according to a news-story by Reuters news-agency, 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. The company, which currently produces its Cell processors used in the PlayStation 3 using 65nm and 90nm process technologies, seriously thinks about outsourcing the production to third parties, which would reduce the research and development investments, while Sony would still enjoy lower pricing of Cell.

“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,” Mr. Nakagawa is reported to have said.

Nevertheless, the move is a bit surprising, as Sony and Toshiba have been developing their 45nm process technology – a particularly costly task – since 2004, which means that the fabrication process should be ready on time for the companies, as the development of a process technology usually takes three to four years, including research and development phases, according to the world’s second largest producer of x86 chips AMD.

 That said it is possible that either Sony wants to get rid of chip manufacturing due to its inefficiency within the company, foresees explosive demand towards PS3 and other devices based on Cell, which would require to boost own manufacturing capacity (this is logical, as Sony semiconductor revenue is likely to grow 57% year-over-year during fiscal year 2006 that ends in March), or plans to cut research and development funds for further development of the Cell and related technologies. Still, the company talks about outsourcing on the first place, which has nothing to do with further technological contribution to Cell.

“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. 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,” Mr. Nakagawa said.

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