TOKYO (Reuters) - Japanese chip makers Toshiba Corp. and NEC Electronics Corp. said on Tuesday they would jointly develop 32-nanometer chips to better keep up with rivals.

The companies will decide in 2008 how and if they will jointly produce the chips, they said.

Chip makers are racing to move to tinier circuit sizes to cut production cost per chip function and enable powerful electronics that run for hours without killing the battery. But the shift also forces changes in fundamental materials and processes and exposes chip makers to huge initial costs.

Samsung Electronics Co., IBM, Chartered Semiconductor Manufacturing Ltd., Infineon Technologies, STMicroelectronics and Freescale Semiconductor have said they would work through 2010 to develop and produce 32-nanometer chips. A nanometer is a billionth of a meter.

Japanese chip makers have yet to map out how to share the estimated 100-200 billion yen development costs to make the leap to the next generation of chips.

Actual production would require new equipment such as immersion steppers, which are multi-million dollar machines that use purified water between the lens and the silicon wafer to draw thin circuit lines onto microchips.

Toshiba and NEC Electronics, which plan to mass produce 45-nanometer or 40-nanometer chips by early 2009, had also approached Fujitsu Ltd Spokesman Etsuro Yamada declined to comment on whether or not Fujitsu would join the group, only saying that Fujitsu was considering various options.

Shares of Toshiba closed up 0.5 percent at 860 yen, while NEC Electronics fell 3.8 percent to 3,040 yen, both underperforming Tokyo's electrical machinery subindex IELEC, which rose 1.26 percent.

(Reporting by Mayumi Negishi)
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