UPDATE 5-Toshiba overhauls chip ops with Samsung, Sony deals

* Toshiba to focus on mainstay memory chip business

* Alliance would fit Samsung plan to grow in non-memory chips

* Toshiba to sell Nagasaki line to Sony as part of shake-up

* Toshiba to build Japan LCD factory, cost seen over $1.2 bln
(Recasts and writes through)

By Mariko Katsumura and Miyoung Kim

TOKYO/SEOUL, Dec 24 (BestGrowthStock) – Toshiba Corp (6502.T: ) will
overhaul its chip operations, outsourcing output of some system
chips to Samsung Electronics (005930.KS: ) and selling a production
line to Sony Corp (6758.T: ), as it reduces its non-memory chip
exposure.

Toshiba, the world’s No.3 chipmaker behind Intel Corp
(INTC.O: ) and South Korea’s Samsung, is restructuring its
chipmaking operations after the business logged an operating loss
of 280 billion yen ($3.4 billion) in fiscal 2008 amid the global
financial crisis.

For new orders for the next financial year beginning in
April, Toshiba will design cutting-edge system chips but will
outsource production to Samsung, and maybe other foundries, to
avoid costly capital investment outlays.

The rare deal between rivals Toshiba and Samsung, which is
expanding into microprocessors, frees up resources for other
projects, which analysts see as positive.

“Thanks to this tie-up Toshiba will gain a stronger
position,” Yumi Nishimura, a senior market analyst at Daiwa
Securities Capital Markets, said after the Nikkei business daily
reported the move earlier on Friday.

“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 explosive
demand growth this year, due to rising popularity of smartphones,
tablet PCs and Web-to-TV devices.

Toshiba said it would sell to Sony its system chip production
line in Nagasaki prefecture, a deal which an industry source has
estimated at 50 billion yen. The line produces chips for Sony
PlayStations and is housed in a factory owned by Sony.
[ID:nSGE6BL0B2]

The electronics conglomerate whose businesses also include
nuclear plants, also plans to build a new domestic factory to
make LCD panels with total investment likely to be over 100
billion yen ($1.2 billion), a prefectural government official
said on Friday. [ID:nTKZ006709]

Toshiba, the third most actively traded stock on Tokyo’s main
board on Friday, rose 0.7 percent to 441 yen outperforming a 0.7
percent decline in the benchmark Nikkei (.N225: ) average.

The Nikkei business daily said Samsung, the most aggressive
spender in memory chips with an 11 trillion won ($9.6 billion)
investment budget for semiconductors alone this year, was chosen
as it has advanced technologies and the ability to churn out
large numbers of high-performance chips at low cost.

Samsung’s system chips division has seen strong growth this
year, driven by robust demand for mobile application processors
and image sensors.

The division reported 4.8 trillion won revenue in the first
nine months of 2010 versus 4.4 trillion won for all of 2009.

But the growing business still represents a small fraction of
Samsung’s overall semiconductor business, as its mainstay memory
chip operation, ranked the world’s largest, earned 20 trillion
won revenue in the first nine months of 2010.

Revenue from foundry chipmakers, who produce chips on behalf
of fabless companies such as Texas Instruments (TXN.N: ), Qualcomm
(QCOM.O: ) and Nvidia (NVDA.O: ), is set to rise by 42 percent this
year to $28.9 billion this year and reach $33.7 billion next
year, according to research firm iSuppli.

Taiwan’s TSMC (2330.TW: ) and UMC (2303.TW: ) are the world’s the
two biggest foundry makers. Samsung is already in foundry chip
production deals with other companies such as U.S.-based Xilinx
(XLNX.O: ).
($1=82.96 Yen)
($1=1151.9 Won)
(Additional reporting by Antoni Slodkowski and James Topham in
TOKYO and Divya Sharma in BANGALORE; Editing by Edwina Gibbs)

UPDATE 5-Toshiba overhauls chip ops with Samsung, Sony deals