TOKYO, JAPAN: Japan's Fujitsu Ltd said it will slash costs and spending in its loss-making chip operations to match sluggish sales growth and to squeeze out a profit, and will not seek out mergers for now.

Japan's biggest IT services firm said on Thursday it plans to cut fixed costs by 80 billion yen ($849 million) in its chip unit over the next two years, and will end spending on cutting-edge chips and instead focus on its strongest products.

Fujitsu, which is chasing IBM and Hewlett-Packard Co in IT services, is hurrying to shift focus to its servers and services operations and restructure its semiconductor business, which have been a drag on its earnings.

Slow to join a flurry of partnerships and mergers among Japanese chip makers in a sector wracked by overcompetition and weak demand, Fujitsu is shelving former dreams of growth.

"(Chip) sales will fall this year, and they won't grow by much in the future. But we will still make a profit," Fujitsu Microelectronics President Haruki Okada told a news conference.

In the current year to March, Fujitsu expects a 25 percent drop in its sales of system chips and microcontrollers, used in products ranging from digital cameras to cars to supercomputers, to roughly 290 billion yen - or about 6 percent of total sales.

Chip sales will stay in the 310 billion yen to 340 billion yen range through to March 2015, and the firm aims to bring the unit into the black by consolidating production facilities, tightening its product line-up and outsourcing production of next-generation logic chips to TSMC, Okada said.

It now aims for an operating profit of 10 billion yen in the year to March 2011, up from an expected 15 billion yen loss this year.

Fujitsu said it will cut fixed costs by 80 billion yen through the year ending in March 2011, and keep capital spending at below 20 billion yen for the forseeable future, Okada said.

"Until we can be profitable on our own, we will not seek out mergers," Okada said.

Fujitsu has played wallflower as Japan's chip makers pool resources to survive a sector wracked by weak demand, opting to outsource production of 28-nanometre chips to TSMC, the world's largest foundry.

Rival chipmakers Renesas Technology Corp and NEC Electronics Corp are in talks to merge in April. Renesas which has allied with Panasonic Corp to develop more powerful chips, while NEC Electronics is in the same IBM-led chip development camp as Toshiba.

Using narrower circuitry makes smaller chips more powerful and energy-efficient. One nanometre is the width of an average molecule - about how much a human fingernail grows in a second.