Elpida Memory and Powerchip Technology Corp. on Monday today announced that they had reached a non-binding understanding that Elpida will purchase all DRAM products that Powerchip will manufacture. Elpida will sell those products as Elpida's house brand products. Further consultations between both companies will be held to reach an early final agreement.

Elpida currently has a foundry agreement with Powerchip for PC DRAMs and purchases half of what Powerchip manufactures at their fabs in Hsinchu, Taiwan. Powerchip currently has 80 thousand wafers per month capacity for commodity DRAM production and licenses from Elpida the right to distribute the other half of the products as their own branded products. Powerchip also has a right to purchase approximately 30 thousand DRAM wafers fabricated at Rexchip Electronics Corp., a joint venture between the two companies, and sell those DRAMs to their customers as their own branded products.

When a final agreement is reached, Powerchip will phase out the sales of own branded DRAMs and Elpida will purchase all PC DRAMs from Powerchip to sell them as its own branded products. In other words, the new agreement will enable Elpida to expand its production capacity without capital expenditures. The technology migration at Powerchip's fabs for DRAM production, which will be conducted by Powerchip, will require relatively small capital spending as those fabs use Elpida's efficient process technologies.

Furthermore, demand for power-saving Mobile DRAMs used in smartphones and tablet PCs has been increasing rapidly, forcing Elpida's Hiroshima Fab to allocate its capacity for these products and less to PC DRAMs. Elpida can compensate a declining portion of PC DRAM production at Hiroshima by increasing procurement from its foundry partner to maintain and improve its presence in the DRAM industry.

Powerchip plans to shift towards a foundry model by expanding its foundry production portion to Elpida as well as other semiconductor products and customers. Furthermore Powerchip and Elpida also intend to work together to continue support for Powerchip's existing customers.

Tags: Elpida, Powerchip, DRAM, Business