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Fujitsu to hive off chip operations

TOKYO - Japanese electronics maker Fujitsu Ltd plans to make its struggling semiconductor operations a separate entity in a move that could smooth the way for alliances with other chip makers.

A wave of consolidation is overtaking Japan’s chip makers, with even heavyweights IBM and Samsung joining hands with other chip makers to cover hefty development costs.

Fujitsu, whose system chips are used in products ranging from digital cameras and flat TVs to supercomputers, has suffered from falling prices and vanishing profits. It hopes that making its chip operations into a separate business will speed up decision-making, it said in a statement.

But a reorganisation without a change in ownership is meaningless, said Yoshihisa Toyosaki, president of IT consulting firm J-Star Inc.

‘This is the beginning of Japan-style consolidation-it’s a slow process involving many steps,’ said Toyosaki.

Fujitsu is likely to keep the business as a wholly owned subsidiary for some time due to a dearth of willing buyers, he said.

Sanyo Electric Co, which is restructuring with the help of shareholder Goldman Sachs, spun off its chip unit in a prelude to finding a buyer, but in October it gave up on a sale to Advantage Partners, which balked at the roughly 130 billion yen ($1.22 billion) price tag.

IBM and Samsung have teamed up with Infineon, Freescale Chartered Semiconductor, STMicroelectronics and Toshiba to develop next-generation 32-nanometre chips.

Domestic rival NEC Electronics has also said it would make the chips, which use smaller circuitry to enable powerful gadgets at lower cost, with Toshiba, to better combat price falls, a shortage of engineers and massive investment costs.

Matsushita Electric Industrial Co Ltd and unlisted Renesas, a joint venture between Hitachi Ltd and Mitsubishi Electric Corp T , are also considering joint development of 32-nanometre chips, leaving Fujitsu out in the cold.

Executives at Fujitsu, whose clients include Canon and Kyocera Corp, have said it expects its chip unit to post a 3 billion yen ($28.10 million) profit in the year to March on sales of 530 billion yen, for a profit margin of 0.6 percent.

‘Our customers consistently praise the quality of our products. The main issue historically is cost awareness-many products are too expensive and include features that our customers may not necessarily need,’ Fujitsu President Hiroaki Kurokawa told reporters last week.

Fujitsu also said it would transfer development and test production of state-of-the art system chips to its Mie plant in central Japan from a technology centre in Tokyo, at a cost of some 10 billion yen.

Shares of Fujitsu Ltd closed down 1.7 percent at 714 yen, while the benchmark Nikkei average fell 3.9 percent.