Five Japanese chip makers including Hitachi Ltd. and Toshiba Corp. have agreed to set up a chip manufacturing plant for up to 200 billion yen (US $1.7b), the Japanese Yomiuri newspaper said on Friday. Construction of the plant will begin in 2006 and it could start production by the following year of system LSI chips with a circuit width of 65 nanometres or narrower, the report said. The three other companies named in the report were NEC Electronics Corp. , Matsushita Electric Industrial Co. Ltd. and unlisted Renesas Technology Corp., a joint venture between Hitachi Ltd. and Mitsubishi Electric Corp. that is the world's fifth-largest microchip maker.

Hitachi said in September it was in talks with other Japanese chip makers on steps to cut costs and boost competitiveness, including setting up a joint manufacturing plant.

A Hitachi spokesman said on Friday that nothing of what was reported had yet been decided.

"It is an understanding in our company and in the industry that we ought to have such a common fabricating plant," he said. "We are considering it, but we cannot comment on details."