JAPANESE memory chip maker Elpida Memory Inc. further expands its strategy of working with Taiwanese counterparts to produce small dynamic random access memory (DRAM) chips to take on competition from South Korea, according to a Japanese newspaper report yesterday.

Elpida will announce in July at the earliest that it will work with Taiwan's ProMOS Technologies Inc., Rexchip Electronics Corp. and Powerchip Technology Corp. in small-sized DRAM production cooperation, the Nihon Keizai Shimbun reported.

According to the report, the development is expected to reduce production costs, as the cutting edge technology will boost the volume of DRAM production by 25 percent on every single wafer.

The report surfaced after Elpida signed an agreement with Taiwan's United Microelectronics Corp. and Powertech Technology Inc. last month to jointly develop integrated circuit packaging technology.

The report said Elpida will provide the technology to the three Taiwanese firms, while all four will use the existing facilities of the Taiwanese partners to churn out small DRAM chips to be used in computers or servers.

The report said the four companies will not need to spend more to build new production capacity, although small improvements in the existing 65 nanometer production process of the three Taiwan firms will be needed.

The report added that the cooperation is expected to boost competitiveness through cost savings and help the memory chip makers in Japan and Taiwan compete with Samsung Electronics and Hynix Semiconductor of South Korea.

Under the collaboration, an Elpida plant in Japan's Hiroshima will entrust the three Taiwanese companies to produce 300,000 12-inch wafers a month, about 60 percent of which will be used in small DRAM manufacturing, the report said.

The three will develop 3D IC integration technology that will stack chips vertically with "through silicon via" technology and are scheduled to present the first results of the deal to the market in 2012.

In a related story, the strategy of production line diversification has benefited Taiwan's dynamic random access memory (DRAM) chip makers and has helped them to ride out recent market volatility when the industry witnessed product prices falling and profit margins squeezed, analysts said yesterday.

In the boom year of 2006, four of Taiwan's four major DRAM companies -- Powerchip Technology Corp. Nanya Technology Corp., Inotera Memories Inc., and ProMOS Technologies Inc. -- posted as much as NT$34.7 billion (S$1.499 billion) in combined net profits in the fourth quarter of that year.

However, due to excessive investment and production gluts in the global DRAM industry following the period of prosperity, memory chip makers suffered a dive in product prices amid fierce competition, with the four companies recording a total of NT$61.3 billion in net losses in the fourth quarter of 2008.

Analysts said the downturn prompted the global memory chip business to scale back production, while Taiwanese memory chip makers stepped into diversification in order not to get lost in the competition and beaten out of the business.

Winbond Electronics Corp. has been cited by analysts as an example of the success of the local DRAM sector's efforts in product diversification.

The analysts said Winbond has cut its standard DRAM chips to less than 30 percent of its total production, while boosting its specialty DRAM chips to 36 percent of the total production.

Standard DRAM chips are used in desktop computers, notebook computers and netbook computers, and specialty DRAM chips are applied to consumer electronics and communications products.

Winbond has set up an in-house design center to tailor specialty DRAM chips for its customers, and the design center is believed to have helped the company reduce production costs by cutting spending on outsourcing design work.

Winbond said in a statement that the company has been able to customize its products and that their caliber has enhanced its strength in price-bargaining.

The analysts said that since the beginning of this year, global demand for specialty DRAMs has been further lifted by growing demand for digital TVs, set-top boxes and cell phones, with the market looking upbeat in terms of the outlook for the consumer electronics sector.

In addition to Winbond, ProMOS has decided to use at least 50 percent of its capacity to make DRAM chips for consumer electronics and mobile product use, working with Japan-based chipmaker Elpida Memory Inc., the analysts said.

Powerchip and ProMOS have also entered the turf of NAND flash memory chip production. NAND flash memory chips are used in data storage products.

While Powerchip's NAND flash chips on a self-developed 70 nanometer production process have already hit the market, ProMOS has joined a government-funded alliance called the Taiwan Innovation Memory Chip Co. to develop new NAND flash technology.

-The China Post/Asia News Network