Elpida Memory will seek an equity tie-up with U.S. rival Micron Technology, a newspaper said on Wednesday, as the Japanese firm confronts mounting pressure from approaching debt repayments and a deteriorating memory chip market.

Analysts said a deal with Micron, one of several potential partners to emerge in media speculation about Japan's last remaining player in PC memory chips, would be a sensible choice as Elpida struggles to survive in competition with South Korean giants.

I believe Micron has the superior technology, said Damian Thong, analyst at Macquarie Capital Securities in Tokyo.

It would be good for the industry, because it would lead to coordination between the two and therefore effectively consolidation into three major groupings in the DRAM space.

Elpida has informed its main bank that it aims to establish an alliance with Micron that will secure a combined DRAM (dynamic random-access memory) market share of more than 20 percent, allowing it to better compete with market leader Samsung Electronics, the Yomiuri newspaper reported.

The report sparked a 7 percent rise in Elpida's shares by mid-afternoon trade to 325 yen, helping it to recover from a record low last week of 297 yen.

Elpida reiterated that it was in talks with banks about refinancing loans and with clients about investments and prepayments, but declined further comment on the Yomiuri report. Micron had no comment.

LOOMING REDEMPTION

Elpida needs to redeem 45 billion yen ($587 million) in bonds by late March and repay about 77 billion yen borrowed under a government-backed rescue package in early April.

The Yomiuri report said Elpida's bank had called on it to produce a plan by Wednesday for improving its financial position.

The slump in the DRAM chip market, spurred by a sluggish global economy and consumers' growing preference for tablet devices that use flash memory instead of DRAM, has delivered a heavy blow to producers throughout the sector, including the smaller players in Taiwan's crowded market.

Micron Chief Executive Steve Appleton said last month that consolidation in the DRAM sector was inevitable as weak prices sap chipmakers' cash.

A number of those companies continue to weaken and as they do ... they're going to figure out what they're going to do, so I think that will drive some further consolidation, I think that's inevitable, Appleton said after the Boise, Idaho-based company reported worse-than-expected quarterly results.

Micron purchased Toshiba Corp's DRAM facilities in the United States a decade ago when Japan's top chipmaker abandoned that increasingly tough sector once and for all.

Elpida, which combined the DRAM operations of other big Japanese chipmakers, was eventually left as Japan's only player still willing to brave the volatile market.

Recent media reports have pointed to Taiwan's Nanya Technology, which already has ties with Micron, and Toshiba as possible partners for Elpida, although both companies have rejected or played down the possibility.

Speculation about possible rescue deals has buffeted Elpida's share price, which at its all-time low of 297 a week ago was less than one-third its value at the start of last year.

Macquarie's Thong also raised the possibility that Elpida might raise cash by selling rights to its technology -- essentially parting with the family jewels.

He added that he expected the company to win a bank loan refinancing, putting the spotlight on its 45 billion yen in corporate bonds.

The debt situation is the key focusing point, he said.

If the objective is primarily a financial investment in exchange for technology and the partnership, the pool of possible partners is fairly wide, he added.

The possibilities for a strategic partner would be limited, however. With South Korean producers Samsung Electronics and Hynix Semiconductor unlikely options, Micron would be the only possible candidate, he said.

(Additional reporting by Nobuhiro Kubo in Tokyo, Noel Randewich in San Francisco; Writing by Edmund Klamann; Editing by Edwina Gibbs)

Japan