Fujitsu chip unit in alliance talk with peers

TOKYO Wed Sep 10, 2008 1:15am EDT

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TOKYO (Reuters) - Fujitsu Ltd's (6702.T) microchip unit said it was in talks with other chip makers both at home and abroad on potential alliances ranging from co-development of advanced chips to integration of operations.

Fujitsu Microelectronics also told Reuters on Wednesday its earnings targets for the year to March 2009 looked challenging due to tough business conditions such as higher raw materials prices and earthquake damage to one of its plants.

Fujitsu Microelectronics was established in March after computer and computer services firm Fujitsu made its struggling microchip operations a separate entity.

"From co-development to business integration, there are some potential ways for us to go. We are keeping our doors open on all options and our talks have not got into specifics yet," Fujitsu Microelectronics President Haruki Okada said in an interview.

Matsushita Electric Industrial Co Ltd (6752.T) has allied with unlisted Renesas, while NEC Electronics Corp (6723.T) has teamed up with Toshiba Corp (6502.T) to develop more powerful semiconductors.

Fujitsu Microelectronics has said it aims for 490 billion yen ($4.59 billion) in sales and several billion yen in operating profit in the current business year, in a turnaround from an operating loss of several billion yen a year earlier.

"There's no denying that it is going to be tough to hit the targets. On top of a firmer yen, higher oil and raw materials prices, we've got earthquake damage to think about," Okada said.

"I picked such a time to become president," he joked.

Fujitsu Microelectronics' semiconductor plant in Iwate prefecture, northern Japan, suffered extended closures due to earthquakes in June and July.

Shares in Fujitsu were up 0.2 percent at 681 yen, outperforming the Tokyo stock market's electrical machinery index .IELEC.T, which fell 2.1 percent.

(Reporting by Kiyoshi Takenaka; Editing by Hugh Lawson)

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