TOKYO – Sony Corp. is removing a chip from the European version of its new PlayStation 3 (PS3) game console, a move that cuts costs but means users cannot play some of their old games.

Sony shares rose nearly 3 percent after the news, which is expected to expedite efforts by the Tokyo-based electronics and entertainment conglomerate to turn its PS3 operations profitable – a focus for investors.

Sony, locked in a three-way battle with Microsoft Corp. and Nintendo Co. Ltd. for dominance of the $30 billion video game industry, now makes a loss for each PS3 it sells.

Both Nintendo's Wii and Microsoft's Xbox 360 are cheaper than Sony's latest PlayStation and have been outselling it, although the Xbox 360 has been on the market longer.

The PS3 is to go on sale in Europe on March 23, following its North American and Japanese launches late last year.

Unlike the PS3 being sold in the United States and Japan, the European version will not carry a Sony-made microchip that offers graphic- and data-processing functions for PS2 games, cutting production costs, said a spokesman for game unit Sony Computer Entertainment (SCE).

The console will still be equipped with a different chip that processes graphics for PS2 games, but the backward compatibility of the machine will be lessened, the spokesman said.

Sony packs the PS3 with its cutting-edge technology such as a Blu-ray high-definition DVD player and the Cell microchip, dubbed a “supercomputer on a chip,” which provides lifelike graphics and high-speed downloading of game software and video clips.

But they have driven up production costs, dragging Sony's game operations into a deep loss for the business year ending March 31.

Sony said in January it expected losses in its game unit to exceed its previous estimate of 200 billion yen this business year, but would aim to break even on games in the year starting April 1.

In another cost-cutting measure, Sony is planning to introduce Cell chips with circuitry width of 65 nanometres this year, replacing the current 90-nanometre ones.

Narrower circuitry makes microchips smaller, cutting per-chip production costs. A nanometre is one billionth of a metre.

The basic model of the PS3 sells for 49,980 yen ($426.5) in Japan and $499 in the United States, double the price of Nintendo's Wii.

Sony saw its television business posting a profit for the first time in two years in October-December, making its game division's profitability the biggest concern for investors.

Shares in Sony closed up 2.8 percent at 6,160 yen, outpacing the Tokyo stock market's electrical machinery index IELEC, which rose 1.22 percent.

($1-117.17 Yen)