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Toshiba To Restructure Chip Operations

December 26, 2010

Toshiba Corp. said on Friday that it would restructure its chip operations, outsourcing the making of chips used in smartphones, televisions and driving systems to rival Samsung Electronics and selling one of its production lines to Sony Corp.

The move, which was reported early Friday by the Nikkei business daily, is an attempt by Toshiba to increase profitability and scale back its non-memory chip exposure.

It follows steep operating losses suffered by Toshiba of 3.4 billion (280 billion yen) amid the fiscal 2008 global financial crisis.

The company is currently the third largest chipmaker worldwide, lagging behind Intel Corp. and Samsung.

Beginning with new orders for the upcoming financial year that starts in April, Toshiba will design leading-edge system chips, but will outsource production to Samsung, and possibly other foundries, to avoid expensive capital investment outlays, the company said.

Analysts viewed the rare deal between the two chip rivals as a positive, since it will free up Toshiba’s resources for other projects.

“Thanks to this tie-up Toshiba will gain a stronger position,” said Yumi Nishimura, a senior market analyst at Daiwa Securities Capital Markets, during an interview with Reuters.

“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 enormous growth in demand this year due to the rising popularity of smartphones, tablet PCs and other devices.

Toshiba said it would sell to Sony its system chip production line in Nagasaki, which makes chips for Sony PlayStations and is already housed in a factory owned by Sony.  A Reuters report cited an industry source as estimating the deal worth about $600 million (50 billion yen).

The Nikkei business daily said Toshiba chose Samsung, which has invested $9.6 billion (11 trillion won) this year for semiconductors alone, due to its advanced technologies and its ability to produce large numbers of high-performance chips at a low cost.

Samsung has seen strong growth in its system chips division this year, driven mainly by high demand for mobile application processors and image sensors.

However, this still represents only a small fraction of Samsung’s overall semiconductor business, whose mainstay memory chip operation is currently ranked largest in the world.

Cosmo Securities analyst Hiroyasu Nishikawa said Toshiba’s decision to partner with Samsung should allow the company to focus on its mainstay flash memory business.

Toshiba had been posting losses in system chips, he said during an interview with Dow Jones Newswires.

“It’s a positive strategy to spin off this segment.”

However, “there are concerns about the risk of leakage in know-how and technology” by aligning with rival Samsung, he added.

Investors welcomed the news, making Toshiba the third most actively traded stock on Tokyo’s main board on Friday, where it rose 0.7 percent, closing at 441 yen after reaching an intraday high of 446.

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