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Sony: Shooting from the Chip?

Nearly anyone who owns a PC is familiar with the "Intel Inside" sticker. The blue-and-white logo has been a potent symbol of Intel's (INTC) virtual lock on the market in PC processors over the past decade. Despite their best efforts, Advanced Micro Devices (AMD), Samsung, Texas Instruments (TXN), and other chipmakers have failed to knock Intel from the No.1 spot.

Now, Sony (SNE) is winding up for a swing at the champ. On Dec. 14, Kenshi Manabe, its semiconductor chief, told a gathering of financial analysts that he expects the next-generation Cell processor to become the industry standard for all kinds of multimedia consumer electronics. "The Cell chip is as good as the Pentium, if not better," Manabe said, according to several people who attended the meeting.

BEYOND GAMING. Not so fast. The Cell won't be on the market until next spring, when Sony is slated to launch its PlayStation3 video-game console. And while analysts believe in the Cell's potential as a multimedia processor, none of the three companies that shared the chip's $400 million development costs -- Sony, IBM (IBM), and Toshiba -- have specified what will come after game machines.

"There was a great deal of interest in whether Sony would comment about the use of the Cell chip in applications other than PS3, but [Manabe] made no specific references," Goldman Sachs Japan analyst Yuji Fujimori wrote in a report after the meeting. "The current Cell chip production capacity will be dedicated entirely to PS3 applications."

You can't blame Manabe for grandstanding a bit. Sony's new chief, Sir Howard Stringer, badly needs the Cell -- and the next-generation PlayStation -- to be a hit. The chip's success could signal to the industry that Sony is back after a series of missteps left it with an outdated product lineup and mounting losses. For the year ending in March, the Tokyo-based company forecasts an $86 million net loss, compared with last year's $1.4 billion profit.

GREAT EXPECTATIONS. Sony's woes stem largely from its loss-making electronics division. The unit, which includes semiconductors, accounts for nearly 70% of revenues but hasn't been profitable for the past two years. By making its own specialty chips, Sony hopes to give its TVs, cameras, and cell phones technologies that rivals can't match.

Putting the Cell in a gaming console gives the chip a high-profile start. Sony's gaming machine, PlayStation2, has been the hottest console in history, topping 100 million units in November after five years on the market. Analysts predict the next-generation machine will do even better. Sony is expected to sell more than 12 million PS3s in the first year and reach the 200 million mark within five years, estimates researcher Envisioneering Group.

Those numbers would give Sony the crucial economies of scale needed to ratchet down the cost of each chip -- estimated in the hundreds of dollars today. But matching Intel's reach won't be easy. The No. 1 chipmaker has sold hundreds of millions of Pentium microprocessors in PCs over the years. "The Pentium chip is unique in its stature, and I don't ever expect its success to be repeated," says Tom Starnes, an analyst at market-watcher Gartner.

MULTICORE MIGHT. As broadband connections make it easier to download movies, music, and games, tech companies think consumers will want a single device for all of these applications. But so far, PCs have offered the best solution because of their ubiquity and easily expandable storage space. PCs, however, can't handle too many tasks at once before getting overwhelmed.

Sony has a good shot at getting the Cell into multimedia devices that are more capable. The chip is what's known as a multicore processor. Today's standard chips rely on a single processor to juggle tasks such as e-mail, Net surfing, and word processing. They run hotter, devour more energy, and can't handle tasks as smoothly as a multicore chip, which divvies up tasks among two or more processors (the Cell has between 4 and 16, depending on the configuration).

That would be useful in multimedia machines that manage the digital entertainment files of an entire household. "If you had one base station doing all the decoding for games, audio, video, still photos, and weather information at once, something like the Cell could handle it," says Starnes.

SLOW DEVELOPMENT. Others envision even broader uses for the chip. Mercury Computer Systems, a Chelmsford (Mass.) outfit that specializes in computers for medical and military imaging, has said it will develop the chip in CAT and MRI scanners as well as radar and sonar devices. Charles King, principal analyst at Hayward (Calif.)-based Pund-IT Research, says he sees the Cell becoming a powerful tool for computer animation, electronic diagnostic equipment, and 3-D design. "Cell has the potential to influence any of these areas," says King.

But at this point, nobody besides Sony has any idea what the Cell will allow the PS3 to do. Game developers say they haven't seen a prototype that comes close to the blazing processing speeds and life-like graphics of the commercial-ready console Sony is promising. Though Sony declines to comment on such complaints, in November it failed to deliver on a promise to send game creators an upgraded prototype containing a graphics chip made by Santa Clara (Calif.)-based nVidia (NVDA).

Without the souped-up graphics chip, "the machine we have is 10 times slower than the PS3 should be," says an exec at a game software maker who spoke on condition of anonymity. "The graphics chip was supposed to be ready by November. But we're still waiting."

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