UPDATE 1-Powerchip eyes profit and seeks state funds

* Higher DRAM prices would help Powerchip's bottom line

* Upbeat on flash mkt; new firm can help reduce DRAM output

(Recasts with detail and Nanya news)

TAIPEI, Oct 20 (Reuters) - Powerchip (5346.TWO), Taiwan's top PC memory-chip maker, expects to return to profit in the fourth quarter helped by rising prices, and has requested state funds to help restructure the island's DRAM sector.

Powerchip Semiconductor Corp, which also owns technology to produce flash memory chips, has submitted a proposal to the government to request funds of T$4.5 billion ($140 million) initially to set up a new flash memory chip company.

Chairman Frank Huang told reporters on Tuesday the company would also raise another T$5.5 billion from the private sector for the new company, which Powerchip said would secure capacity by buying facilities from other local DRAM firms in the future to help reduce DRAM output gradually.

"For flash, the biggest driving force will come from smartphones and Apple also plays an influential role," Huang said, referring to Apple Inc's (AAPL.O) iphone.

Powerchip, Nanya Tech (2408.TW) and other smaller Taiwanese DRAM chip makers have all been losing money for most of the past year in a global downturn due to oversupply, while DRAM prices have rebounded recently as PC demand recovers.

If Powerchip runs at full capacity and the average DRAM price stays high at more than $2, Huang said his company is likely to return to profit in the final quarter of 2009.

The projection is more optimistic than analysts' forecast of a T$2.35 billion loss for the fourth quarter, according to Thomson Reuters I/B/E/S. But that is narrower than an estimated loss of T$5.7 billion for the third quarter, the data showed.

Powerchip's application came after Taiwan Innovation Memory Co (TIMC), a new state-backed DRAM company, requested T$5 billion from Taiwan's government, which has allocated a total T$30 billion in state funds to help local DRAM makers struggling with their worst-ever downturn. [ID:nTP89400]

Taiwan's government will take three months to decide who will get the funds and how much, though the entire process might be shorter. [ID:nTP125748]

The companies' proposals would have to include plans on developing technology with foreign firms and as well as strategies such as mergers and acquisitions.

On the same day, however, Nanya Tech and Inotera (3474.TW), Nanya's joint venture with U.S.-based Micron (MU.N), have decided not to submit their own restructuring plan to the government.

"The current DRAM industry is different from what it was a year ago. The best timing for DRAM reformation or consolidation under this scheme has passed," Nanya Tech said in a statement.

"To consolidate partial capacity does not bring much help to DRAM restructuring. After thoughtful consideration, our camp has therefore decided not to submit the application for government funding." (US$1=T$32.3) (Reporting by Argin Chang and Baker Li, Editing by Elaine Hardcastle)