updated 2/2/2004 2:51:00 PM ET 2004-02-02T19:51:00

Sony Corp. will invest $325 million in IBM Corp.'s upstate New York semiconductor plant and work with Big Blue to produce tiny new chips for next-generation computer systems and consumer electronics.

IBM plans to begin pilot production of the new microprocessors, code-named "Cell," and other chips for Sony at the plant in East Fishkill, 60 miles north of New York City, in the first half of 2005.

IBM's chip-making division has struggled with weak demand, leading to a $252 million loss in the company's technology group in 2003. However, the Sony deal follows a November announcement by Microsoft Corp. that IBM will make chips for the next version of the Xbox video game consoles.

The chips produced at the Fishkill plant are to be the first IBM chips to be made on 300 millimeter wafers of silicon, instead of the current 200 millimeter wafers. More chips can be made from each of the larger wafers, improving productivity and cost-effectiveness.

IBM spokesman Chris Andrews said IBM and Sony and Toshiba Corp. have been working since 2001 to develop the "Cell" technology at an IBM facility in Austin, Texas.

Although specific products that will be powered by the microprocessor haven't been announced, Andrews said they could include Sony's PlayStation game system and other home entertainment devices.

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