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. Last Updated: 07/27/2016

NEC, Hitachi Form Computer Alliance

TOKYO -- Japanese chipmaking giants NEC Corp. and Hitachi Ltd. unveiled a broad alliance pact Wednesday, including a possible joint venture to develop new DRAM (dynamic random-access memory) chips.

The two companies said the tie-up was aimed at sharing their hefty development costs - currently 50 billion yen ($410 billion) a year - for new DRAM chips.

By joining forces, the two hope to bolster profitability in their ailing semiconductor divisions, which have been hit by a prolonged market slump and stiff price competition.

NEC and Hitachi said they aimed to become the world's foremost supplier of DRAM chips and capture 20 percent of the global DRAM market. NEC currently has an 11 percent share and Hitachi 6 percent.

"The memory market is seeing an increasing concentration of North American, European and Asian manufacturers, making it vital to achieve economies of scale and enhanced technological development while strengthening cost competitiveness," the two firms said in a statement.

Once reaching a basic agreement, they will begin unifying product brands and expanding their ties, they said.

All DRAM operations at the two companies would be combined in the joint venture, allowing significant advantages through economies of scale and shared expenses.

"This is the only choice they have ... Even NEC cannot survive [in the DRAM] market as it is now," said Yutaka Sugiyama, an industry analyst at Warburg Dillon Read. "Only one [DRAM] maker will survive in Japan ... and now we know which one it will be."