Fujitsu will withdraw from chip manufacturing by selling its Japan-based semiconductor factory to Taiwan Semiconductor Manufacturing Co. (TSMC), according to sources.

The Asahi Shimbun newspaper today reported that Fujitsu has entered negotiations to sell its semiconductor factory in Kuwana, Mie Prefecture, to TSMC.

Fujitsu's Mie plant has a payroll of 1,400 producing system LSI chips for digital home electronic appliances.

But Kazuhiko Kato, a Fujitsu executive vice president, said the operation had become a drain on the company's finances.

"Our chip making division has run up billions of yen in operating losses in three months," Kato said July 27 at the release of financial results for the first quarter of fiscal 2012. "We have not been able to cover the fixed costs."

The paper also adds that struggling Renesas Electronics Corp. is also trying to interest TSMC in buying its main Tsuruoka plant in Yamagata Prefecture, and that Fujitsu and Renesas are negotiating with Panasonic Corp. to jointly set up a new company to integrate their money-losing system LSI chip operations.