Feb. 14 (Bloomberg) -- Shares of Sony Corp., the world's largest maker of video-game consoles, rose to their highest in more than four years after the company said it will cut spending on chips to help the business turn profitable next fiscal year.

The stock climbed 3.8 percent to 6,230 yen as of the close on the Tokyo Stock Exchange, the highest since July 9, 2002. Yutaka Nakagawa, Sony's chip business chief, said yesterday the company will ``significantly'' reduce investments on semiconductors such as those that run PlayStation 3 consoles.

The plan to cut spending eased concern that costs for the main Cell processors for the PlayStation 3 are eroding earnings. Sony said it may also contract with outside companies to make the chips. Lower costs would help Sony compete against cheaper video game players from Nintendo Co. and Microsoft Corp.

``It's a positive development for Sony and a good move for any company that doesn't have much spare capital to spend,'' said Fujio Ando, who helps oversee $365 million at Chiba-Gin Asset Management Co. in Tokyo.

Sony plans to spend 300 billion yen in three years to March 2010 on semiconductors, compared with the 500 billion yen estimated for the three years ending March 2007, Nikkei Inc. reported yesterday, without saying where it got the information.

Profitable Next Year

Nakagawa yesterday declined to disclose spending estimates or timeframes for the reduction. Sony's semiconductor business will become profitable in the year ending March 2008, after posting losses the previous fiscal year, he said.

The change in spending ``confirms a more prudent approach by Sony to capital allocation, one that previously has been focused on Sony needing to build everything itself,'' David Gibson, an analyst at Macquarie Securities Ltd. in Tokyo, wrote in a report dated yesterday. He rates the company ``outperform.''

Sony yesterday said it is ``seriously considering'' outsourcing production of future Cell chips to improve earnings. Macquarie's Gibson said Chartered Semiconductor Manufacturing Ltd. and Toshiba Corp. would benefit should Sony outsource Cell manufacturing.

`Japanese electronics makers tend to keep chip production in-house, as it is one key areas of competitive advantage,'' Wakabayashi said. ``The challenge for Sony, if it does decide to outsource, is how to cut investment in the business without losing competitive edge.''

45 Nanometer Chips

The new Cell chips will be made using 45 nanometer technology, compared with 65 nanometer now, making them smaller and more powerful, Nakagawa said. A nanometer is a billionth of a meter and measures the distance between transistors in a chip. A smaller gap means more transistors can be packed on each wafer, reducing manufacturing costs. Mass production of chips currently ranges between 65 nanometers and 180 nanometers.

Separately, Credit Suisse Securities (Japan) Ltd. raised its rating on the Japanese consumer electronics industry to ``overweight'' from ``market weight'' yesterday, citing improving earnings on a weaker-than-expected yen, cost reductions and slower-than-estimated declines in television prices. Sony is the world's second-largest consumer electronics maker after Matsushita Electric Industrial Co.

``We view Sony most highly in terms of investment appeal,'' Koya Tabata, a Tokyo-based analyst at Credit Suisse, wrote in the report. Strong sales of electronics and release of PlayStation 3 in Europe in March will help boost earnings, Tabata, who rates the company ``outperform,'' said.

Sony overtook Sharp Corp as the world's largest liquid- crystal display television maker in terms of revenue, market researcher NPD Group Inc. said yesterday.

The company yesterday stuck with an October forecast for chip sales to rise 57 percent to 770 billion yen in the year ending March 31, which would be equivalent to 9.4 percent of overall revenue.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net.

Last Updated: February 14, 2007 01:42 EST