DOW JONES NEWSWIRES

Shares in Asia's major makers of dynamic-random-access-memory chips fell sharply Friday, on profit-taking and concerns that Taiwan's proposal to realign its struggling chip sector through mergers may take time and do little to change weak industry fundamentals.

Analysts and market participants said for the DRAM industry to return to profitability, weaker companies need to exit the market rather than merge.

The near-term outlook for the DRAM industry still remains bleak, mainly because demand for personal computers and other electronic devices remains depressed amid the global economic slowdown.

The Taiwan government said Thursday it will set up a state-funded company in about six months that would merge the island's memory-chip makers, in a long-awaited step to consolidate the local chip industry and stem mounting losses at the firms. The new company, Taiwan Memory Co., will seek an alliance or merge with either Japan's Elpida Memory Inc. (6665.TO) or Micron Technology Inc. (MU) of the U.S.

"The plan is preliminary and still faces a lot of challenges in incorporating different listed companies," said Chen Li-yen, an analyst at Capital Securities.

Chen said chip prices remain low on weak demand, and investors should avoid DRAM stocks in the near-term.

Taiwan's six DRAM makers are Powerchip Semiconductor Inc. (5346.OT), Nanya Technology Corp. (2408.TW), Inotera Memories Inc. (3474.TW), Rexchip Electronics Corp., ProMOS Technologies Inc. (5387.OT) and Winbond Electronics Corp. (2344.TW).

By midday Friday, Powerchip Semiconductor was down 6.9% at NT$3.81, while Nanya fell 5.8% to NT$6.03. Inotera Memories dropped 6.3% to NT$11.10 and ProMOS fell 1.6% to NT$1.21. In Tokyo, Elpida's shares slumped more than 11% to Y545. Analysts said these stocks were taking a beating on concerns it may take longer than expected for the consolidation to occur.

In Korea, shares in Samsung Electronics fell 0.6% to KRW500,000, while Hynix Semiconductor Inc. (000660.SE) was up 0.9% at KRW8,340 after falling 4.4% on Thursday.

Kenneth Lee, an analyst at Fubon Securities Investment Trust Co., attributed the declines in Taiwan to profit-taking. Most DRAM shares had risen Thursday, when Taiwan unveiled its plans to shore up its DRAM sector. Lee said investors may not build positions in DRAM stocks before more concrete details about the consolidation are introduced.

The Nikkei reported in its Friday morning edition that Elpida may now have to seek capital assistance from the Japanese government because its plans involving the Taiwanese government's rescue package for DRAM makers could materialize later than expected.

Elpida President Yukio Sakamoto said in an interview with Dow Jones Newswires last week that the company may have to seek financial assistance from the Japanese government.

"The choice of either Elpida or Micron will give Elpida only a 50% chance to pursue consolidation," said Yuichi Ishida, an analyst at Mizuho Investors Securities Co., who has a neutral rating on Elpida.

If Elpida fails to pursue the plan with Taiwan, it will have to look for ways to raise cash, he said.

Haruo Sato, an analyst at Tokai Tokyo Research Center Co., who rates Elpida at neutral, said the Japanese company needs to spend at least Y40 billion to Y50 billion for technological improvement.

-By Yuzo Yamaguchi and Yun-Hee Kim, Dow Jones Newswires; 852-2832-2330; yun-hee.kim@dowjones.com

(Jessie Ho in Taipei and Jung-Ah Lee in Seoul contributed to this story.)