IBM has begun production of a less expensive version of the PS3 Cell processor.

According to next-gen.biz, the move represents a significant step towards Sony being able to cut the cost of the console.

The Cell processor is currently a 90-nanometre model, but the new version has been brought down to 65nm, which is cheaper to produce.

IBM created the original chip with Sony and Toshiba – a process that began in March 2001. It is being manufactured at IBM’s East Fishkill plant in New York.

Reuters recently reported that Sony executive deputy president Yutaka Nakagawa hinted at that Sony was looking to produce a 45nm Cell by 2008 or 2009.

"We tentatively plan to start commercial production of 45-nanometre chips in late 2008 or early 2009. We are going to study carefully whether we should carry out all the capital investment and produce them in-house,” said Nakagawa.