Toshiba to Acquire Sony Chip Manufacturing Plants

Electronics giant Sony has decided to cut off its loss-making arm, the multimedia microprocessor outfit and sell it to Toshiba, another Japanese giant in the electronics industry. The deal being worked out is a joint venture with Toshiba. Sony officials are hoping that Toshiba would be able to more successfully develop the chip that runs the PlayStation 3, Sony’s gaming offering.

After months of rumors, fuelled on by leaks at strategic points of time, Sony, which is the second largest consumer electronics company in the world today, made the announcement regarding the deal with Toshiba late Thursday. As per the announcement, Sony would partner with Toshiba and hand over the production of its Cell processor, to Toshiba.

While the exact amount involved in the deal is not known yet, sources say it could be in the region of $856.38 million, which translates to about 100 billion Yen. This sale is the latest in the line of downsizing exercises the company has undertaken under CEO Howard Stringer. In its preliminary state, the sale is being projected as a non-binding memorandum of understanding (MoU).

Stringer has also reduced the number of Sony employees and also shut down plants so it could improve on its profitability. He had said earlier in February this year that the company was going to reduce the development costs for the chip. His decision was based on the fact that the chips cost a lot to develop and were low on popularity. He had also promised to consider the outsourcing option then.

Toshiba, along with IBM, had helped Sony create the Cell chip. Therefore, it also seems the ideal company to acquire ownership of the chip. The Cell is not the only chip on Toshiba’s shopping list. It also wants to acquire ownership of another Sony plant that manufactures image-processing chips, which are also used in the PlayStation 3.

Both Sony and Toshiba are not talking about the price for this second deal. However, the Nikkei Business Daily put the price at 30 billion yen; roughly $256.92 million.

The Cell hosts a number of multimedia games on a single chip. A plant in Nagasaki, southwestern Japan, currently manufactures the chip. The current manufacturing costs are already high, and would shoot up further if the company were to consider manufacturing 45-nanometer next generation chips.

Sony and Toshiba issued a joint statement to the effect that Sony would hand a plant operated by Sony Semiconductor Kyushu Corp. to Toshiba. This plant hosts the 300-millimeter line wafer line fabrication facilities, which contain the Nagasaki Technology Center. The Cell is developed at this center. The transfer would be completed by March, 2008.

According to the terms of the deal, Toshiba would own the assets mentioned earlier with a 60% stake, while Sony, along with its gaming unit Sony Computer Entertainment, would have a minority stake of 40% and also participate in production.

The acquisition comes as a big boost to Toshiba’s efforts to grow in the chip manufacturing business. While being the largest Japanese chip manufacturer, Toshiba is still way behind rival companies like Intel and Samsung.