Toshiba eyes Samsung to take chip production

Compiled From Kyodo, Bloomberg

Toshiba Corp. is holding negotiations with Samsung Electronics Co. of South Korea to outsource its unprofitable business of producing semiconductors for digital home appliances, sources said Friday.

Toshiba plans to engage only in designing the system large-scale integration chips so it can concentrate resources on its memory chip business, which is seeing growing demand for use in smart phones, the sources said.

Continuing the system LSI business would require Toshiba to make large investments because it needs cutting-edge facilities, they said.

By outsourcing the system LSI production business, the electronics giant aims to cut investment costs and place emphasis on producing NAND flash memory chips, the sources said.

Toshiba makes system LSIs at its plants in Oita and Nagasaki prefectures. After outsourcing the business, the Oita plant will make imaging sensors used in digital cameras, while the Nagasaki plant will be sold to Sony Corp., according to the sources.

“It could be burdensome for Toshiba to develop its own production systems, so they need a strategic partner,” said Seo Won Seok, a Seoul-based analyst at NH Investment & Securities Co. Sales of chips that Samsung manufactures for other companies may account for about 15 percent to 20 percent of its total system LSI chip sales this year, Seo said.

System LSI chips, whose functions range from processing images for television screens to crunching data, will account for 30 percent of the ¥1.2 trillion in sales Toshiba forecasts from its chip business this year, according to the company.

Toshiba’s chip division broke even in 2009 after incurring a ¥280 billion operating loss in the previous year.

In June, Samsung said it will invest $3.6 billion to expand capacity at its plant for 12-inch chips in Austin, Texas. The new facilities, which will be in full operation by late 2011, will be used to make LSI chips, Bill Cryer.