Right after the plans of close technology and foundry collaboration between Japanese Elpida Memory and Taiwanese ProMOS were scrapped, the Tokyo-based memory firm signed a yet another agreement with one of China’s most advanced foundries - Semiconductor Manufacturing International Corporation.

Two memory companies signed Wednesday a five-year foundry service agreement to produce Elpida’s advanced 0.10 micron products at SMIC’s 300mm fabrication facility in China. Production is scheduled to commence in Q4 2004, and the production quantity will be finalized shortly. The two DRAM producers had previously collaborated in foundry arrangements at the end of 2002 regarding production of Elpida’s 0.13 micron-based DRAMs.

“Elpida moves one step closer to achieving our target production ratio of 50:50 between our own fabrication plants in Hiroshima and external foundries,” said Yukio Sakamoto, president of Elpida Memory.

Japanese memory maker believes that collaboration with SMIC will increase Elpida’s production capacity as well as provides the benefits of more flexible sales logistics, increased local-content and reduced tariffs on memory chips for the growing Chinese market.

According to the initial plan of Mr. Sakamoto, Elpida will become the world’s No.3 memory company with about 20% of the market by 2005. In order to accomplish this task the Japanese largest DRAM producer has been signing technology for capacity agreements with certain Taiwanese or Chinese semiconductor manufacturers. Ties with memory makers from China and Taiwan should help Elpida to ensure lower manufacturing costs compared to DRAMs produced in Japan. Currently Elpida has technology agreements with Taiwan-based PowerChip Semiconductor (PSC) as well as China-based SMIC.

Prospective production volumes of agreement between Elpida and SMIC are to be decided.

According to Semico Research, Elpida’s market share has shrunk to 3.5% in 2003 from 6.4% in 2002.