Oki Electric Industry Co, the world's biggest maker of low-capacity computer-memory chips, said it will farm out more of its semiconductor production to United Microelectronics Corp (UMC,
Oki will outsource some production of chips for communications equipment and consumer electronics to UMC, the world's second-largest supplier of made-to-order chips, the two companies said in a news release.
The agreement, ranging from memory chips to system chips, will cover semiconductors made with circuit features measuring 0.15 microns and smaller.
Handing production over to a made-to-order supplier like UMC, which analysts and investors have encouraged, will help Oki reduce its investments on new plants and equipment.
"Every Japanese chipmaker is short of cash," said Akira Minamikawa, a semiconductor analyst at WestLB Securities Pacific Ltd. "Oki probably doesn't intend to renew old equipment in its existing plants from now on."
UMC currently makes chips for Oki with circuitry widths of 0.22 microns. UMC is one of only a handful of chipmakers worldwide investing in the most advanced chipmaking technology.
Under the agreement, Oki will license system-chip designs to customers of UMC and its affiliate UMC Japan.
System chips combine various functions now handled by separate chips on a single piece of silicon.
Oki expects to increase sales in its chip business by a fifth to 140 billion yen (US$1.2 billion) in the year ending March 31 from 115 billion yen a year ago. About 30 percent of its chips will be made by UMC, Oki said in July.
Tokyo-based Oki joins other Japanese chipmakers teaming to cut development and production costs for system chips.
Earlier this year, Hitachi Ltd and Mitsubishi Electric Corp said they'll combine system chip operations by October. Toshiba Corp and Fujitsu Ltd have also pledged to share development costs for chips used in digital electronics and communications equipment.
Toshiba, the world's second-largest chipmaker, is developing an advanced chip along with Sony Corp and International Business Machines Corp. The chip may be used in Sony's next version of its PlayStation video-game console, Ken Kutaragi, president of Sony Computer Entertainment Inc has said.
Fujitsu, Hitachi and Mitsubishi Electric say they expect smaller losses this year, while Toshiba and NEC predict their chip businesses will return to profit.
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