Fujitsu looks to spin off chip operations-source

TOKYO, Jan 20 (Reuters) - Japan's Fujitsu Ltd 6702.T plans to spin off its struggling microchip operations, in a move that could smooth the way for partnerships with other chip makers, a company source said on Sunday.

Fujitsu’s system chips, used in products ranging from digital cameras to supercomputers, have been hurting from high development costs and price falls, even as annual sales have inched up 3 percent to 473.5 billion yen in the year to March 2007.

The business, close to 10 percent of Fujitsu’s overall sales, posted a loss of 5 to 6 billion yen in the April-September period, executives have said. The business is expected to edge into the black in the October-March period, said the source, who was briefed on the spin-off plan.

Fujitsu is likely to spin off the business as a wholly-owned subsidiary, as a prelude toward further reorganisation, said the source, who was briefed on the plan.

Price falls and a shortage of engineers, coupled with massive investment costs, are prompting system chip makers to band together as they race to move to smaller circuit sizes to cut production costs and make energy-efficient and powerful chips.

Domestic peers Toshiba Corp 6502.T and NEC Electronics Corp 6723.T have said they would work together in making next-generation 32-nanometre chips.

Matsushita Electric Industrial Co Ltd 6752.T and unlisted Renesas, a joint venture between Hitachi Ltd 6501.T and Mitsubishi Electric Corp 6503.T, are also considering joint develop of 32-nanometre chips. (Reporting by Mayumi Negishi and Kentaro Hamada; Editing by Lincoln Feast)