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Fujitsu offloads chipmaking to Taiwan

Apes Intel, AMD with TSMC tie-up

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Updated Fujitsu has joined the parade of chip-design firms that are passing off all or part of their manufacturing to the giant Taiwan Semiconductor Manufacturing Company (TSMC).

The Japanese megaconglomerate is struggling to put its financial house in order. Earlier this month, for example, it cut contractors' pay by 15 percent. And on Thursday, it announced that it would further cut costs by outsourcing its system chips to TSMC and working with that company to design next-generation chips.

In a related financial realignment, Fujitsu also put the finishing touches on the deal to sell its hard-drive business to Toshiba, announced this February, putting a price of ¥30bn (£205m, $304m) on it and saying that it will be completed by July.

The acquisition of Fujitsu's hard drive division by Toshiba is just the latest in a string of consolidations in that industry. Witness Hitachi absorbing IBM's drive business in 2002 and Seagate glomming onto Maxtor in 2005, for example.

By outsourcing its chip-making to TSMC, Fujistu is in good company. The world's largest chip fabricator is building 40nm graphics chips for AMD and working with Intel on a low-power system on chip (SoC) for mobile devices, based on Chipzilla's Atom processor.

TSMC can use the business. In its financial report for the first quarter of 2009, also released on Thursday, the company said that its net profit of NT$1.56bn (£47m, $32m) was down 94.5 per cent from the same period a year ago, when it earned NT$28.14bn (£572m, $847m).

Alhough those may sound like bleak numbers, they were better than the company had projected earlier. Back in January, TSMC said that it thought that they'd lose money in their first quarter. Instead, the company managed to not only break even, but to make a profit. A small one, to be sure, but any black ink is to be preferred over red. Money-losing AMD should be so lucky.

In fact, TSMC vice chairman F.C. Tseng was positively perky when he recently said that he expects the global semiconductor business to shrink only 20 per cent in 2009 and not the 30 per cent that TSMC CEO Rick Tsai had predicted earlier this year.

And that's the Meltdown. A time when a nearly 95 percent drop in profit and a 20 per cent drop in global sales can be regarded as good news.

And a time when companies such as Fujitsu are busily positioning themselves for the hopefully inevitable day when the clouds finally lift. ®

Update

On Thursday, Fujitsu also reported its financial results for its 2008 fiscal year ending on March 30, 2009. Its sagging numbers underscore why it's cutting costs and outsourcing its manufacturing.

The company's net sales for 2008 were ¥4,693bn (£32.2bn, $47.6bn), down from ¥5,330bn (£36.7bn, $54.1bn) in 2007 - a decrease of 12 per cent. Net income nosedived from a profit in 2007 of ¥48bn (£329m, $487m) to a net loss in 2008 of ¥112bn (£771m, $1,140m).

On the plus side, Fujitsu's cash reserves of ¥528bn (£3.6bn, $5.4bn) dipped only slightly from 2007. More importantly, the company concludes that it has hit bottom and will rebound in fiscal 2009 - although only marginally - with projected net sales this year of ¥4,800bn (£32.9bn, $48.6bn) and a net income of ¥20bn (£137m, $203m).

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