Fujitsu Ltd., Japan's fourth-largest chipmaker, said it may focus on semiconductor design to reduce spending on machinery as falling demand may force the company to miss its full-year business targets.

``The investment needed for cutting-edge production capacity is enormous, reaching hundreds of billions of yen,'' Haruki Okada, who heads the chip business at Fujitsu, said in a Sept. 10 interview. ``We aim to significantly minimize such spending and invest our money in strengthening product lines and development.''

Fujitsu, which plans to cut capital spending on semiconductors by 47 percent this year, joins Freescale Semiconductor Inc. and Sony Corp. in scaling back chip manufacturing to avoid multi-billion dollar investments on factories. Meeting profit targets this year will probably be ``extremely difficult'' because of slumping demand for electronics, Okada said.

Tokyo-based Fujitsu in May forecast ``several billion'' yen in operating profit in the chip business for the 12 months ending March 31, 2009, on 490 billion yen ($4.6 billion) in revenue. The semiconductor operations reported two straight years of losses because of spending on manufacturing facilities.

The unit will probably report a 2 billion yen operating loss on 470 billion yen in sales this fiscal year, returning to profit in the 12 months ending March 2010, Yukihiko Shimada, an analyst at Mitsubishi UFJ Financial Group Inc., forecast in a report on Aug. 18, citing the slowing global economy for the estimated loss.

`Requires Considerable Scale'

``Production of next generation chips requires considerable scale found in only a handful of companies'' such as Intel Corp., Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co., Shimada said in a telephone interview. ``Fujitsu would be wise to seek production partners.''

Fujitsu said in May it will cut capital spending for semiconductors by 47 percent to about 50 billion yen this fiscal year. The company, which in March spun off the chip unit, invested about 312.5 billion yen in the business over the past three years, with most of the spending going to build a factory in Mie prefecture, west of Tokyo, the company said.

Austin, Texas-based Freescale, which was taken over in a buyout led by Blackstone Group LP in 2006, supplies chips to Research in Motion Ltd., Motorola Inc., General Motors Corp. and Bayerische Motoren Werke AG. The company relies on TSMC, the world's largest custom-chip maker, for some of its production.

Increased Custom Manufacturing

Freescale doesn't need to invest as much in semiconductor plants because it will continue turning more production over to other companies, Chief Executive Officer Richard Beyer said in February.

Sony in February agreed to sell its video-game chip production lines to Toshiba Corp. for 90 billion yen as part of plans to jointly manufacture processors for PlayStation 3 consoles. The company in February 2007 said it will not invest in next generation chip equipment, focusing instead on consumer electronics such as flat-panel televisions.

Renesas Technology Corp., a venture established in 2003 by Hitachi Ltd. and Mitsubishi Electric Corp., is also considering outsourcing production, because maintaining output capacity is not crucial to the company's competitiveness, Chairman Satoru Ito said in January. The Tokyo-based company is Japan's second- largest chipmaker.

Fujitsu's microchips, used in computer servers and Sony Corp.'s camcorders and cameras, accounted for less than 10 percent of total revenue last fiscal year. The company is also Japan's largest computer-services provider.

The shares rose 2.6 percent to 706 yen as of 9:30 a.m. on the Tokyo Stock Exchange today. The stock has fallen 6.1 percent this year, compared with a 40 percent decline by Toshiba, which focuses on flash memory for consumer electronics, and a 44 percent drop by Elpida Memory Inc., which makes computer memory.

Source:Bloomberg