Production of the Graphic Synthesizer, a key chip in the game platform, was slowed by a migration from 0.25-micron to 0.18-micron production, company officials said. At the same time, officials revised their revenue forecast from the games business, projecting a loss instead of a profit.

The Tokyo stock market reacted the announcement by pushing down Sony's stock price to 9,480 yen ($87.78), its lowest level in the last five months. The stock closed Friday down 7.5 percent from Thursday's close.

Shipment delays for Playstation 2 and possible shortages for the upcoming holiday shopping season have been widely reported. Last month, Sony Computer Entertainment America Inc. slashed its Playstation 2 shipment plans from a million units to 500,000 because of component supply shortages.

Sony invested about $700 million last year to build Fab 1 in Nagasaki with a capacity of ten-thousand 200-mm wafers a month. The process migration troubles haven't shut down that line.

Teruhisa Tokunaka, chief financial officer and executive vice president of Sony, pointed to production systems problems as the reason for the shipment delays. Tokunaka only said that the troubled systems were multiple and did not specify what they were. The troubles have already been fixed and production is recovering, he said.

"With the trouble, the yield rate was low, resulting in a shortage of LSI chips," a Sony spokesman said. Sony Computer Entertainment Inc. (SCEI) engineers found the source of the troubles about month ago and have fixed them, "but it will take some more time to reach a planned yield rate," the spokesman said.

To compensate for the shortage, Sony has decided to continue the fabrication of the Graphic Synthesizer at its Kokubu fab on Kyushu using a 0.25-micron process until the end of the current fiscal year, which ends next March.

SCEI originally planned to use the 0.18-micron version of the chip for overseas sales of Playstation 2, so it will now support two print-circuit boards — one for the 0.25-micron chip and another for the 0.18-micron chip. "The delay of Fab 1's normal operation, the use of an old-generation chip and the use of multiple pc-boards push up costs," said Tokunaka.

SCEI had planned to ship total 10 million units of Playstation 2 worldwide by the end of its fiscal year. Tokunaka said Sony would stick with its original plan. "At the introduction, quick takeoff is important, so we will stick to the original plan, even if it causes a cost increase."

SCEI planned to ramp its monthly production capacity from 400,000 units to 1.4 million units this fall. But the graphics chip shortage has gotten in the way of that production target. Now the company is concentrating on producing overseas models to lessen delays, and as a result there may not be enough domestic models available in Japan for year-end sales, according to the spokesman.

"The situation is negative but not serious," said Kazuharu Miura, an analyst with Daiwa Institute of Research Ltd. "When the yield rate is not good, the cost naturally goes up, but it will be resolved soon. I see this trouble as a temporary one and basically PS2 business is favorable."

Another key chip for Playstation 2, the Emotion Engine, is fabricated at Sony's joint-venture fab with Toshiba Corp. Production of the Emotion Engine has been successfully migrated from 0.25-micron to 0.18 micron production at the joint venture, and now all Playstation 2 systems use 0.18-micron versions of that chip, the Sony spokesman said.