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TOSHIBA AND NEC JOIN FORCES TO DEVELOP MAGNETIC CHIP

Toshiba and NEC, Japan's two largest chip makers, have announced that they will jointly develop a new generation of memory chips.

Already vanquished from much of the commodity chip market, the two companies have turned their attention to magnetic random access memory chips, which are expected to be much faster and more efficient than current types.

The two companies expect global sales of about 1 trillion yen ($8.2 billion) by 2005 for the chips, which use magnetic rather than electric elements to store information.

But their venture, which will include 20 researchers from each company, is starting late. IBM and Infineon Technologies, the German chip maker, have been working on such chips for almost two years, beginning with twice as many engineers and scientists. The companies hope to market the chips by 2004.

In pooling their resources, Toshiba and NEC hope to capitalize on their knowledge of magnetic materials and experience with consumer electronic devices like cellphones, which may use the new chips.

"By combining our technological capabilities, we believe we can accelerate the research phase, overcome the current development issues and quickly bring MRAM technology to the product development level," said Daniel Mathieson, an NEC spokesman.

Japanese chip ventures have tended to concentrate on wringing costs out of established products and on capturing market share; the new venture is a rare attempt to develop a wholly new product. Analysts say the companies had little choice.

Toshiba and NEC each posted record losses in the fiscal year ended March 31, as semiconductor prices slumped and demand for electronics collapsed. Both have heavy debts; NEC's net indebtedness is almost three times shareholders' equity.

News reports in Japan put the size of the companies' investment in the research project at 10 billion yen ($82 million). The companies have not said what they will do once they have a technology ready for use in products; they could make the chips themselves, subcontract the work to chip foundries in Taiwan and elsewhere, or license the technology.

If they decide to manufacture the chips, Toshiba and NEC will face competitors like Samsung Electronics in South Korea that have extremely low costs. Falling memory chip prices and Japan's higher costs would squeeze the profits from the venture, analysts said.

"Can they develop the technology? Yes," said Steve Myers, who follows Japanese chip makers for HSBC Securities in Tokyo. "Will they make a commercial success of it? Probably not." After seeing DRAM chips, the current technology, become a bulk commodity too cheap for them to make profitably, the Japanese companies may be wary of risking a repeat with MRAM, analysts said.

I.B.M. researchers have shown that MRAM chips can be much faster and more compact than current chips and, unlike them, can preserve their data through a loss of power.