IBM, Sony set game plan for PlayStation 3 chips

Sony has hired IBM to develop a high-performance chip called 'the Cell' that will be used on the PlayStation 3 and other consumer high-speed communication devices.

Sony has hired IBM to develop and produce a high-performance microprocessor for Sony's next generation of consumer electronics, including the PlayStation 3.

The agreement, announced early Monday, could bring IBM (ibm) revenue of between $2 billion and $4 billion over three years, people familiar with the matter said.

It marks a big win for IBM's semiconductor business, which had $3.5 billion in sales to external customers last year.

John Kelly, senior vice president in charge of technology for IBM, said the new chip, code-named "Cell," will be designed at the Armonk, N.Y., company's Austin, Texas, lab, and will be produced at a fabrication plant in East Fishkill, N.Y., that IBM is building at a cost of $3 billion.

The plant is to be completed in 2002, with full production in 2003. Production of the Cell chip is slated to start in 2004. Kelly said the agreement will result in sales of tens of millions of chips, compared with its normal deals "that we make in the hundreds of thousands of units." He declined to say what products the chip will be used for.

But people familiar with the matter said the new chip will be at the heart of the Japanese company's PlayStation 3, the intended successor to the hotly sought PlayStation 2.

The Cell chip will be designed to process information at supercomputer speeds and handle broadband communications that are much faster than the dial-up modems used by most consumers today. The chip may also find applications in other Sony (sne) Internet consumer products that rely on high-speed communications.

Toshiba still in the game
The contract represents a diminished role for Japan's Toshiba, which designed and built the processors for the PlayStation 2, which went on sale last year. Sony also makes some of its own chips and will license IBM manufacturing technology to make the Cell chip.

But Toshiba will retain a role in the PlayStation chip technology, with its engineers participating in the design team in Austin; the company also will be able to bid on contracts to manufacture the chips. Such second-sourcing agreements are common in big semiconductor contracts, but Kelly of IBM said Toshiba's involvement is unusually deep. The three companies expect to invest a combined $400 million in the development effort.

A Sony spokesman in Tokyo confirmed that Sony, IBM and Toshiba have reached an agreement on developing chips for next-generation consumer-electronics products, but said he can't comment on the details.

Kelly said in an interview that Sony made its choice to take advantage of high-speed, low-power technology that IBM uses in microprocessors for supercomputers it sells to Department of Energy labs.

Although IBM is a relatively small factor in the world-wide semiconductor market, Kelly said it has leading products in areas such as networking and communications, high-performance computing, and consumer electronics. It previously won the contract to build chips for Nintendo's Game Cube, which is expected to go on sale this summer.

IBM was the first company to develop chips that used copper instead of aluminum to conduct electrons, providing faster processing and cooler operations because they don't require so much power. IBM also has an innovative technology called "silicon-on-insulator" that uses a plastic package to route much of the communications on and off the chip. That has helped it win contracts from switch and router makers Cisco Systems and Alcatel SA. (A router is a part-hardware, part-software device that directs traffic flow among segments of a network or between networks.)

Because of the types of chips it makes, IBM's semiconductor business, Kelly said, hasn't been afflicted by the industry slowdown that has hurt makers of processors and memory for personal computers and chips for cellphones. Kelly said that IBM was bidding on several big contracts, including Sony, when it made the decision to build the new East Fishkill plant. "If they all hit, we'll probably have to expand," the $5 billion, three-year, capital-spending budget for semiconductors that it announced last year, he said.

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