Japan’s Elpida, the world’s number three D-Ram memory chip supplier, and Powerchip, its Taiwanese manufacturing partner, will this week ask the Taiwan government for financial assistance in exchange for moving more of Elpida’s research and development to Taiwan.

The proposal would represent the first formal move by Taiwanese contract manufacturers of dynamic random access memory, the type of chip used mainly in personal computers, to move up the value chain by eventually developing their own production technology.

D-Ram producers have fared worst among chipmakers in the global economic downturn because the sector was already suffering from chronic oversupply when the financial crisis caused a sudden drop in demand.

Spot market prices for D-Ram chips cover only about 40 per cent of production costs, in spite of a small rebound in the past few weeks.

Taiwanese manufacturers have been worst hit, partly because they have to pay royalty fees to license production technology from foreign partners such as Elpida, and many are on the brink of collapse.

The Taiwan government has set industry consolidation and the eventual development of homegrown production technology as long-term goals for the industry, and has required companies to produce such plans before it would commit to any bail-out.

Executives from both Elpida and Micron, the world’s fourth-biggest supplier, have this month visited Taiwan’s economic ministry to discuss potential aid packages for their joint ventures and technology partners in Taiwan.

Eric Tang, an official at Powerchip, Taiwan’s biggest D-Ram manufacturer, said the company would this week ask the government for help in setting up the joint research and development centre with Elpida.

The immediate benefit of moving research to Taiwan, said Mr Tang, was so “we won’t have to pay as much in licensing fees”. Elpida could not be reached for comment.

Powerchip has this week applied to the government to roll over its bank loans. Mr Tang said Powerchip has also deepened its production cuts, to 20-25 per cent of its capacity, in an attempt to reduce supply and stabilise prices.

Any collapse of Taiwan D-Ram makers would be a boon for rivals in South Korea, where the world’s two biggest D-Ram suppliers, Samsung and Hynix, are based. While cash-strapped Hynix was forced to cut production by 30 per cent and is seeking additional funding, South Korea’s financial regulator said its problems did not warrant industry restructuring.

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