Sony Corp will sell its production facilities for making key microchips used in its PlayStation 3 game console to Toshiba Corp, pulling back from the heavy investment needed.

The price and other details have yet to be set, Sony said on Thursday, but sources close to the matter say the price is likely to be in excess of 100 billion yen ($858 million).

The electronics and entertainment conglomerate plans to sell to Toshiba its Cell microprocessor output facility in Nagasaki prefecture and RSX graphic chip production line in Oita prefecture, both in western Japan, by March 2008.

Toshiba, Sony and Sony Computer Entertainment -- Sony's video game unit -- plan to set up a joint venture next April to run the Nagasaki facility.

Sony said back in February it would cut future chip spending and might not produce an advanced version of the Cell chip with 45 nanometer circuitry in-house.

For Toshiba, the world's second-largest maker of NAND-type flash memory chips behind Samsung Electronics Co Ltd, the purchase of the Cell and RSX production facilities and future investments in the next-generation chips will help boost its presence in the logic chip market.

CORE BUSINESS

Sony, which is in the final year of its three-year turnaround plan under Chief Executive Howard Stringer, has been shedding its none-core assets aggressively.

Despite Sony's planned sale of the manufacturing facilities for cutting-edge chips that drive the PS3, its struggling video game operations remain one of Sony's core businesses, Sony spokesman Daichi Yamafuji said.

Sony said it will cooperate with IBM and Toshiba in developing the Cell chip with 45 nanometer circuitry.

Developing more advanced and less costly videogame chips is critical for Sony's loss-making game business after cutting-edge components such as the Cell and a Blu-ray high-definition DVD player have driven up the PS3 price, dampening demand.

Sony's PS3 has lagged far behind Nintendo Co Ltd's Wii in sales since their launches late last year due to its high price and scarcity of strong game titles, weighing on Sony's group-wide earnings.

Toshiba and International Business Machines Corp, Sony's two partners in developing the high-performance microchip dubbed a supercomputer on a chip, are set to make the 45 nanometer version, which compares with the current 65 nanometer model.

A nanometer is one-billionth of a meter.

Narrower circuitry makes the size of a chip smaller and helps manufacturers cut per-chip production costs. But finer circuitry also means heavier initial investments for microchip makers as costs for chip-making equipment balloon.

People say only three or four companies like Intel, IBM and TSMC will afford 45 nanometer investments, Daiwa Institute of Research analyst Kazuharu Miura said.

Intel is the world's largest microchip maker while Taiwan Semiconductor Manufacturing Co Ltd (TSMC) is No.1 contract chip maker.

Shares in Sony, a supplier of Cyber-shot digital cameras, Vaio PCs and Bravia flat TVs besides the PS3, closed prior to the announcement up 0.6 percent at 5,430 yen, while Toshiba lost 0.2 percent to 1,015 yen.

The Tokyo stock market's electrical machinery index was up 1.05 percent.

($1=116.51 Yen)

Japan Electronics Ibm Sony