Elpida to shrink chips, may freeze 50-nm shift

TOKYO, Oct 6 (Reuters) - Japan's Elpida Memory Inc 6665.T, the world's No.3 maker of PC memory chips, said on Monday it will make its chips smaller to cut costs and could freeze a plan to produce new models because of the credit squeeze.

Elpida, which trails Samsung Electronics Co Ltd 005930.KS and Hynix Semiconductor Inc 000660.KS, plans to mass-produce smaller versions of its 1 Gigabit chips by the end of this year. The smaller chips are 20 percent cheaper than existing ones with the same capacity.

The smaller chips would use existing equipment and the cost cuts would help the company weather a potential slowdown in PC demand and a microchip glut, Elpida said.

The move would also buy time for cash-strapped Elpida, which has aggressively invested in a DRAM venture with Taiwanese partner Powerchip Semiconductor Corp 5346.TWO, before it needs to spend more money on new equipment to make state-of-the-line 50-nanometre chips and stay competitive.

“In the best case scenario, we will mass produce 50-nanometre chips by the end of December,” said spokesman Hideki Saito. “But if the current situation continues, we may have to freeze our move to 50-nanometre until the time is right.”

Using 50-nanometre circuits would allow Elpida to make even tinier chips that would halve the cost of making a semiconductor compared with Elpida’s existing chips that use 65-nanometre circuits.

Smaller circuitry allows chip makers to squeeze more functions and power onto each chip and cut unit costs, but the initial costs are high.

Before the announcement, shares of Elpida closed down 10.4 percent to 1,548 yen, the lowest since it listed in November 2004, compared with a 4.9 percent fall in Tokyo's electrical machinery subindex .IELEC.T.

Reporting by Mayumi Negishi; editing by Sophie Hardach