TOKYO (Reuters) - Toshiba Corp. and NEC Electronics Corp. said on Wednesday they would co-develop cutting-edge system chips with a circuitry width of 45 nanometres to share development costs and cut time to market.

Toshiba said it and its current partner for developing such microchips, Sony Corp., were in talks with NEC Electronics on a possible three-way alliance in the venture.

But development costs have increased as chip makers move to narrower circuitry, raising concerns it could soon become difficult for Japanese chip producers to make large investments alone. Japanese companies in the sector have been losing global market share in recent years.

Current advanced chip plants use circuitry widths of 90 nanometres, or billionths of a metre. Semiconductor makers are expected to move to 65-nanometre circuitry before making 45-nanometre microchips.

"Technologically and financially, developing the most advanced chips alone is getting quite difficult," Mizuho Investors Securities analyst Yuichi Ishida said.

NEC Electronics, 70 percent owned by electronics conglomerate NEC Corp., last month announced a swing to a first-half loss and forecast a deeper full-year deficit than analysts had expected, hit by sharp price falls and slow sales of cellphone chips.

Toshiba, on the other hand, increased quarterly profit by 46 percent rise, boosted by booming demand for flash memory chips and improved PC operations. It also signalled it might upgrade its full-year forecast.

Toshiba is benefiting from growing demand for NAND-type flash memory, a storage device widely used in digital cameras, photo-snapping phones and portable music players such as Apple Computer Inc.'s hot-selling iPod nano.

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