ELECTRONICS firm Filtronic last night denied it had been forced to abandon plans to manufacture chips for the next generation of mobile phones.

The company announced yesterday that it was in discussions with a leading aerospace and defence equipment manufacturer to form a joint venture to run its Newton Aycliffe plant, in County Durham.

The loss-making plant will continue to develop compound semi-conductors, but with a new emphasis on defence products, such as radars and electronic countermeasure devices.

Filtronic bought the former Fujitsu factory to manufacture chips for the next generation of mobile phones. But the factory is said to be costing more than £1m a month to run, and has been hit by a downturn in the mobile market, which has seen several manufacturers pull out of handset production.

Filtronic said it still believed there was a "substantial business opportunity" for chips for so-called 3G phones. It says it envisages there will be one or more selected third party customers for its compound semi-products.

A hoped-for cash injection from the joint venture will also allow it to expand the type of compound semi-conductors it manufactures, increasing capacity.

John Clarke, a telecommunications analyst with stockbrokers Brewin Dolhpin, said there was still uncertainty surrounding the 3G mobile phone market. He said: "People don't yet know what these phones will be used for, and the networks are not yet in place to deliver them. It might also be another four years before there is a mass market in place for the 3G handsets when they are ready."

A Filtronic spokesman said they had been under pressure from the city and shareholders to take action over its compound semi-conductor business. The proposed joint venture would relieve the financial burden caused by the Aycliffe operation, which employs about 100 staff.