TOKYO Sony Corp. is steering its semiconductor business from vertically integrated operation to "fab-lite" operation that would involve outsourcing production of the Cell processor.
The move is a major break from Sony's previous strategy to develop and manufacturing core chips internally, a philosophy that remains a top priority for rival consumer electronics giant Matsushita.
"We'll invest in semiconductors on an 'asset-lite' policy, which puts much weight on the investment efficiency," said Yutaka Nakagawa, executive deputy president of Sony in charge of the semiconductor business. "We'll focus more on the competitive areas."
Yoshihisa Toyosaki, president of J-Star Global Inc., a Tokyo-based research and consultation company, is skeptical about Sony's new policy. "In the short term, it'll work to ease cash flow," he said. "But there is no clear vision in the future."
Game engine LSIs were once the most successful model of the vertical operationSony planned, designed, manufactured and implemented processors in its own game machines, including the PlayStation line. Supported by the large volume application, Sony made a big investment on the most advanced 65-nanometer fab in Nagasaki at that time with the strong leadership of Ken Kutaragi, formerly the company's executive deputy president. The Nagasaki fab started operation in 2004 and is now fabricating 65-nm Cell processors.
Nakagawa, however, gave a yellow light to the business model, saying that Sony would not prepare the 45-nm Cell by itself. The company is considering outsourcing the production of the 45-nm Cell processor, expected to begin in late 2008.
Sony has invested a total of 460 billion yen (about $3.8 billion) on semiconductors over a three-year period ending next month. Of this amount, 200 billion yen ($1.7 billion) was spent on the Cell processor.
In the coming three-year "mid-term" period beginning in April, "We are considering decreasing investment in semiconductors greatly," Nakagawa said.
Former generations of the PlayStation started with costly hardware. But Sony has reaped great profit by scaling down the devices used to more advanced technology nodes. The Cell processor came to life in a 90-nm process and has begun migration to 65-nm. "When the Cell goes to a 45-nm process, it should start yielding profit," said J-Star Global's Toyosaki.
"The Cell processor is largely dependent on an IBM proprietary process," Toyosaki said. "If Sony gives up in-house production, the dependence on IBM will increase and the outsourcing will be subject to go to IBM-affiliated foundries. The effort, human resources and time that the Japanese company has thrown into the Cell processor would come to nothing."
Sony is collaborating with Toshiba and NEC Electronics to develop 45-nm process technology. The collaboration will end in March. But, Sony, Toshiba and IBM started joint R&D for 32-nm device technology in March 2005. Nakagawa said that Sony has no intention of stopping R&D efforts. But continuing to maintain volume production facilities is another story.
Under the new policy, Sony intends to focus on three areasimagers, game LSIs and system-on-chip LSIs for audio/video devices. Sony has about 60 percent market share in the CCD imager market and is now reinforcing CMOS sensors as well. One hundred and fifty engineers were shifted to the imager section from audio/video sections to boost the development.
Even if outsourced, the game processors will continue to be one of Sony's main semiconductor products. The company intends to recoup all the investment on the Cell processor from the game business.
In the audio/video area, system-on-chip LSIs for TVs and Blu-ray Disc next-generation DVD products will be reinforced, but non-profitable chips such as GPS-integrated chips will be discontinued.
Sony's semiconductor sales are expected to jump by 57 percent from 490 billion yen ($4.1 billion) to 770 billion yen ($6.4 billion) this fiscal year, ending March, owing to the demand from game consoles and sales of imagers. About 70 percent of its sales are for its own products and 30 percent of the sales come from the merchant market.
Sony's semiconductor business had been losing money before turning to the black in the October through December period of 2006. Nakagawa intends to keep the business in the black.