The deal will make Elpida the world's fourth largest DRAM maker by revenue (11.1 percent, 2001 figures), edging it ahead of Germany's Infineon Technologies AG (9.7 percent). It will also give Mitsubishi, Japan's fourth largest chipmaker, a way out of commodity memory chips, which over most of the last year have sold for below cost. At the same time, Powerchip will gain a secure source of technology to take it beyond the 0.11-micron node and have a stable customer for its new 12-inch wafer fab.

"This transition makes good business sense considering current market conditions," said Koichi Nagasawa, executive vice president of Mitsubishi. "We are looking forward to working closely with Elpida Memory to ensure a smooth transition for our DRAM."

Thursday's announcement is part of an industry trend toward consolidation sparked last year by merger talks between debt-laden Hynix Semiconductor Inc. and Micron Technology, Inc. The multi-billion-dollar deal failed, but others have gone through in its wake. Micron picked up Toshiba Corp's last commodity DRAM fab, in Virginia, and Infineon struck alliances with Taiwan's Winbond Electronics and Nanya Technologies, while increasing its stake in ProMOS Technologies, a joint venture it runs with Mosel-Vitelic Inc.

Last week, media reports had suggested that Intel Corp. might invest in Elpida as part of today's deal to boost the DRAM maker's resources and to dilute the influence of Samsung, Micron and Hynix, which control 60 percent of the market (see September 26 story). Taiwan's ProMOS Technologies, which also runs a 12-inch wafer DRAM fab, was mentioned as an alliance partner, too. An Elpida spokesperson said she was unaware of such deals.

The monetary details of the Elpida-Mitsubishi integration were not disclosed -- such as whether Mitsubishi was selling out or getting an equity stake in Elpida -- but both parties expect to settle any differences by year-end. Manufacturing is expected to kick off in April, 2003.

By that time, Elpida, a 50-50 joint venture between NEC and Hitachi Ltd., will have gained intellectual property rights to Mitsubishi's standard DRAM devices and modules currently produced on 0.15 micron and smaller process technologies. Mitsubishi will also provide Elpida with customer and technical support during the integration stage, the companies said.

Earlier this year, Powerchip had been mentioned as a target partner for Elpida, especially as rumors grew about Mitsubishi possibly exiting the commodity DRAM business. Mitsubishi is an investor in Powerchip and its technology source.

Amid turmoil and sinking prices in the DRAM industry, Powerchip opened its first 12-inch wafer plant in May. The facility is expected to produce 15,000 wafers per month by the end of this year, which would dovetail with the ramp up of Elpida's first 12-inch wafer venture, located in Hiroshima. Currently, Elpida makes DRAM through a foundry arrangement with NEC Hiroshima and Hitachi Nippon Steel Semiconductor in Singapore. Elpida's own 12-inch wafer facility will start production by January 2003, allowing NEC and Hitachi to retire their plants or dedicate them to other products.

Powerchip runs a 0.13-micron process at its new plant, transitioning from a 0.18-micron process at its only 200-mm wafer plant. Now that Elpida is taking over as technology provider, Powerchip will work with it for a transition to 0.11-micron. Elpida will offer the technology in exchange for capacity at Powerchip, which hopes to build another 12-inch wafer fab in 2004.

Even though most in the industry agree that consolidation is good, Infineon CEO Ulrich Schumacher suggested last week that Japan would be better off cooperating with his company. "I personally believe that just teaming up within Japan, I'm sorry to say, makes the problem bigger. ... You add exactly the same set-up, but just to a bigger entity. You don't change your company," he said at a press conference, according to Reuters.

There is also doubt as to whether there is too much overlap in the deal because Mitsubishi targets the high end of the market, such as chips used in PC workstations, servers and communications networking gear. "That's just the market Elpida was positioning itself for, so there is going to be a clash of clients and some will go elsewhere," said Andrew Norwood, a London-based semiconductor analyst with research firm Gartner Dataquest.

Norwood also doesn't expect the overall deal to have much impact on current oversupply or pricing. Even so, he believes any general consolidation is a step in the right direction.

In a separate announcement, Hitachi and Mitsubishi also said Thursday they will combine their LSI chip operations. Starting April 1, the new company will be called Renesas Technology Corp. and include Hitachi's semiconductor operations and Mitsubishi's system LSI and memory group. DRAM is not part of the deal. Hitachi will take a 55 percent stake and Mitsubishi will own the rest.