Capital in chip firm won't exceed NT$10 bil.

Shih made the remarks at a Legislative Yuan committee session during which ruling Kuomintang Legislator Lai Shyh-bao expressed concern about a government plan to form a DRAM chip company in a joint venture with foreign and local private makers.

Earlier this year, the government announced the formation of Taiwan Memory Co. (TMC) as part of its efforts to consolidate the country's DRAM industry. Japan's Elpida Memory Inc. and several local companies have agreed to join the TMC project to develop new memory chip technology. TMC was later renamed the Taiwan Innovation Memory Co. (TIMC).

In July, the government said it had allocated NT$30 billion in state funds to help DRAM chip makers to restructure, as they had been struggling in their worst-ever downturn amid the global financial crisis.

TIMC is the only company so far to have requested such state funds before the government's deadline expires next week.

At Thursday's legislative session, Lai questioned the propriety of the government continuing with the TIMC project now that the DRAM industry's business situation has improved.

“The going price of a DRAM chip is US$2.50, higher than its cost of US$2... Against this backdrop, does the industry still need government bailout?” Lai asked.

Moreover, Lai went on, TIMC could become yet another money-losing company like the Taiwan High Speed Rail Corp., in which the government also has a large stake.

“The status of TIMC is confusing and opaque... I'm afraid it could become another THSRC,” Lai said.

In response, Shih said the government's stance on the DRAM industry restructuring is crystal clear and not confusing at all.

“The Ministry of Economic Affairs will not inject money into any venture that cannot obtain core technology,” Shih said, adding that only companies that can gain technology transfers from foreign counterparts and join forces in developing new technology will receive government capital injection.

According to the TIMC's funding application, Shih went on, the company will focus its operations on research and development. In addition, it will also later acquire chip plants for production.

Stressing that TIMC is a private enterprise, Shih said the government is still screening its capital application.

“We will decide on whether to invest in the company only after extensive discussion and careful assessment,” Shih continued, adding that even if the ministry finally decides to invest in the company, its stake will not surpass half of the total shares.

He further said that other DRAM makers are still welcome to file similar applications.

“We will screen those projects in a fair and transparent manner with the paramount criteria being that the project must be able to help DRAM core technology take root in Taiwan,” the minister added.

According to principles unveiled by the ministry in August, applicants' proposals would have to include plans for developing technology with foreign firms, as well as strategies such as mergers and acquisitions.

Taiwan's six DRAM makers have suffered from a supply glut as the global economic slump has sapped demand for electronics and machinery run with semiconductors.

The Ministry of Economic Affairs proposed the establishment of TIMC in March in the hope that it will focus on technological development to help local chipmakers compete with their South Korean counterparts, aided by technology from American and Japanese makers.

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