AfterTek

The PS3 has been struggling to stay afloat while competing with the new Wii and Xbox. That is the reason why Sony has decided to sell the production facilities for powerful computer chip that makes up the PS3 to Toshiba.

Sony made this billion dollar deal in order to focus more on the core electronics business and to help them recover from the loss that the Wii took from them. The two companies are joining together to create high-performance semiconductors.

No price tag was revealed although the Nikkei business daily reported earlier that the total deal was worth an estimated 130 billion yen (1.1 billion dollars). “We haven’t confirmed the precise asset value,” said Sony spokesman Chisato Kitsukawa.

Under its first foreign boss Howard Stringer, Sony is seeking to shed non-core assets and revive its mainstay electronics business, concentrating on products such as flat-panel televisions and digital cameras which are selling well.The electronics giant invested heavily in developing the “Cell” microprocessor – the brains inside the PS3.

But it is struggling to make a profit from the console in the face of fierce competition from Nintendo, with Sony’s game unit deep in the red. Although the company will remain involved in the development of the Cell, it decided to sell the production lines to Toshiba to avoid further heavy investment that analysts say is needed to reduce the production costs. “The problem for the PlayStation 3 is that the production cost is too high,” said Tatsuya Mizuno, an analyst at Fitch Ratings.”It is difficult to maintain a high price because of the competition. That means it is difficult for them to get an adequate return on their investment.”

Sony refuses to say exactly how much it has spent on the PS3 but admits that it will initially lose money on each console after spending hundreds of millions of dollars on new technologies such as the Cell processor. For Toshiba, which is enjoying soaring profits on the back of strong sales of memory chips used in music players such as Apple’s iPod, the deal means that it will expand its semiconductor business and secure orders of chips for the PS3.

Toshiba, along with IBM, helped to develop the Cell processor, which Sony says is 40 times faster than the chip that runs the PlayStation 2. But elsewhere Sony and Toshiba are arch-rivals, waging a fierce war to set the industry standard in high-definition DVD. Sony will also sell Toshiba its operations for the RSX graphic processor used in the PS3. With sales of the console struggling, Sony needs to reduce losses from the game division to a manageable level, said Osamu Hirose, analyst at Tokai Tokyo Research Center.

“In this context, the spin-off of the chip business, which requires continued and heavy investment, is positive for Sony,” he said. Earlier this month Sony cut the price of the PS3 in Japan and Europe as it tries to catch up with Nintendo, a move that analysts said would make it harder for Sony to turn a profit from the console.

While Sony put the emphasis on chip power and ultra-realistic graphics for the latest addition to the PlayStation series, Nintendo opted to develop an easy-to-use console that would appeal to a wider audience. The success of the PS3 is considered vital to a revival at Sony, which under Welsh-born Stringer is in the midst of major restructuring including thousands of job cuts and the recent flotation of its finance arm.