Sony boosts chip production to fuel more game machines

Sony is quickly working to build upon its initial success with the PlayStation2, announcing plans to increase production of the chips used in the gaming consoles and eventually in third-party products.

In addition, Sony said it will sell the vaunted PlayStation2 chipset, which includes the "Emotion" engine touted for its graphics performance, to other manufacturers. This will likely lead to a variety of PlayStation2-compatible products.

Sony is investing 125 billion yen (about $1.16 billion) in new semiconductor production facilities in order to speed up the production of the PlayStation2, the company said. At the same time, the consumer electronics giant is looking into expanding its product offerings by licensing or otherwise distributing its chips to third-party manufacturers, which could potentially include makers of set-top boxes, Internet appliances or wireless devices.

The new manufacturing facility is expected to be completed by January of next year, with chip production to begin the following April, Sony said. The new plants are in response to expected demand for PlayStation2 in the United States and Europe, where the device will go on sale Oct. 26.

The moves reflect the growing emphasis Sony is putting on the PlayStation2 as the driver of its digital convergence strategy, turning the gaming console into a broadband Internet entertainment hub connected to other Sony consumer electronics appliances as well as PCs and digital devices.

"Positioned as a home terminal that can be connected to the next generation broadband Internet network, PS2 is expected to move beyond the boundaries of packaged media and accelerate the arrival of the broadband network media era," Sony said in a statement.

Sony is also raising the stakes in a market where it is facing new competition from Microsoft's upcoming Xbox, as well as renewed competition from Sega's Dreamcast and Nintendo, which is also expected to release a connected gaming console next year.

However, both Sega and Nintendo have struggled recently. Sega replaced its president earlier this month in response to poor earnings, while Nintendo has repeatedly pushed back the release of its answer to the PlayStation2 and Dreamcast, and has also suffered poor earnings.

The growing interest in the market is explained by the exponential growth the Commentary: Sony PlayStation could be Internet access leader

Gartner analyst Tom Austin says it's likely that a large number of people will eventually access the Internet using something other than a traditional Windows or Intel PC. see commentary

digital entertainment market is expected to experience over the next five years. Internet appliances, including TV set-top boxes, handheld computers and gaming consoles, are expected to grow from 11 million units shipped in 1999 to 89 million units in 2004, according to market research firm International Data Corp. The market will grow from revenue of $2.4 billion last year to $17.8 billion in 2004, IDC predicts.

The PlayStation2 chipset will eventually be sold to third-party manufacturers, Sony said. The company is also working to develop processors for other upcoming "digital home entertainment products" from other companies, which could include cable set-top boxes, Web tablets or wireless PDAs (personal digital assistants).

Sony has existing strategic relationships with Palm, for example, which is beefing up its wireless strategy, and the Symbian consortium, which has developed a reference design for a wireless device.