Fujitsu to Curb Chip Spending, Capacity Expansion

Fujitsu will cut spending on its microchips this business year and slow the capacity expansion at its latest semiconductor plant due to sluggish demand for game console chips.

The Japanese chips-to-computers conglomerate said its system chip operations are likely to have made an operating loss in the year ended March 31, but aims to get the business back in the black in the new year.

"We are delaying our plans to ramp up 65-nanometer production at our new plant due to lower customer demand," said Shigeru Fujii, president of Fujitsu's electronic devices group in a news conference.

The Tokyo-based company now plans to bring output capacity at its advanced plant in Mie prefecture, western Japan, to 3,000 wafers per month by the second half of the current business year ending March 2008. Fujitsu originally planned to ramp up capacity to 10,000 wafers per month by then.

"We will closely watch market conditions to judge when will be best to ramp up capacity," Fujii said.

Fujitsu expects its sales of system chips, which combine logic, memory and other functions on a single piece of silicon, came to 460 billion yen ($3.87 billion) in the year ended March, about 9 percent of its expected overall sales of 5.1 trillion yen.

Capital spending on semiconductors will fall "somewhat" from the 140 billion yen Fujitsu spent last business year, Fujii said.

Fujitsu, which supplies chips to Sony , is enjoying strong profits from its IT operations, but it is struggling to make a profit from its device solutions segment, which includes chips for digital audio equipment and game consoles.

The company is not in the market to buy Sanyo Electric's chip business, Fujii said. Struggling Japanese electronics maker Sanyo has begun the process of selling its microchip operations, sources close to the situation said last month.

Prior to the announcement, shares in Fujitsu closed up 2.9% at 826 yen, outperforming the Tokyo stock market's electrical machinery index, which gained 2.1%.