Oct. 2 (Bloomberg) -- Sony Corp. will design chips with Infineon Technologies AG to reduce development costs at its consumer electronics division, the world's second largest.

Sony and Infineon's Qimonda AG will own equal stakes in a Tokyo-based venture that will design DRAM chips that speed up data processing in cameras and mobile phones, the companies said today in a statement. Elpida Memory Inc., a Sony supplier, fell on the Tokyo Stock Exchange on concern it will lose orders.

The agreement will help Tokyo-based Sony reduce costs as Chief Executive Officer Howard Stringer overhauls the chip operations to raise overall profitability to the highest this decade. The semiconductor unit, which makes processors for PlayStation 3 game consoles, posted a 10 billion yen ($86 million) loss last year.

``This allows Sony to cut costs in chip development,'' said Naoki Fujiwara, who helps oversee $3.2 billion at Shinkin Asset Management Co. in Tokyo. ``It is also good for Sony to expand'' its number of chip suppliers.

Sony rose 4.3 percent to close at a two-month high in Tokyo, outpacing a 1.2 percent advance by the Nikkei 225 Stock Average. Elpida's stock fell 3.7 percent to 3,940 yen. American depositary receipts of Munich-based Qimonda, which is 86 percent owned by Infineon, fell 1.4 percent in the U.S. yesterday.

The venture, called Qreatic Design, will probably begin operations by the end of the year, according to the statement. Qreatic will design memory chips customized for consumer electronics, it said.

Consumer Electronics Chips

``This deal allows us to combine Sony's chip-designing ability with Qimonda's chip-making ability,'' Sony President Ryoji Chubachi said in an interview on the sidelines of a consumer electronics show in Tokyo today. ``That way, we can share a roadmap to cut costs.''

DRAM, or dynamic random access memory, is mainly used in computers. Demand for the chips from non-computer makers is growing as cameras, mobile phones and video-game consoles increasingly store data like computers.

Consumer electronics accounted for 28 percent of global DRAM sales last year, generating $9.6 billion in revenue, according to Andrew Norwood, an analyst at Gartner Inc. in London. The portion will probably rise to 35 percent by 2011, Norwood said.

Suwon, South Korea-based Samsung Electronics Co. was the largest producer of non-computer DRAMs last year, followed by Elpida, Qimonda, Micron Technology Inc. and Hynix Semiconductor Inc., Norwood said.

`Not Significant'

``Either Samsung or us will be affected, but not significantly,'' Takehiro Fukuda, chief administrative officer at Elpida, said in an interview in Tokyo today.

Elpida supplies DRAM chips for Sony's PlayStation game consoles and Bravia televisions, said Fukuda, who was formerly chief financial officer. He declined to say how much business Sony has with the company.

Sony, which posted a 10 billion yen ($86 million) loss from its semiconductor operations last fiscal year, is reorganizing the division.

Last month, Sony said it's considering various options after the Nikkei newspaper reported the company may sell some production lines, including those making the Cell processors that run the PlayStation 3 game consoles, to Toshiba Corp. The division posted an operating profit in the quarter ended June 30.

In February, Sony said it will scale back investments on chips and may give up manufacturing future versions of the Cell by hiring other companies to make the semiconductors.

Sony's Stringer has pledged the company's operations will earn 5 cents on every dollar of sales by March 2008 after generating an operating margin of less than 1 percent last fiscal year. The margin last exceeded 5 percent in the year ended March 1998, according to the company's Web site.

Infineon, based near Munich, completed its initial public offering of Qimonda in August last year. Europe's second-largest chipmaker said last month it plans to cut its stake in Qimonda to bolster cash reserves.

To contact the reporters on this story: Mikako Nakajima in Tokyo at mikako@bloomberg.net; Hiroshi Suzuki in Tokyo at hsuzuki5@bloomberg.net;

Last Updated: October 2, 2007 05:00 EDT