Updates to this story
Powerchip has previously outsourced work for Japanese firm Elpida since 2003, and the two have also worked on a joint production venture in the past.
Now Powerchip will pull the plug on its own DRAM chip production, with Elpida acquiring the firm’s production facilities in the deal.
Both of the companies had originally been mulling over a merger deal, according to the Nikkei, however now Elpida will absorb Powerchip's DRAM operations in two stages.
DRAM production levels provided by Powerchip are expected to be increased to 80,000 silicon chips a month at its state of the art facilities, roughly double the amount previously outsourced.
The move comes in the wake of fluctuating price movements in the DRAM market, with Elpida also strengthening ties with other Taiwanese partners, in the hope that it will aid a return to more stable prices.
Elpida and Powerchip hold 17.4 and 2.1 percent shares respectively in a market that is worth approximately $12.1 billion.
However, slowing PC growth, which accounts for 80-90 percent of the DRAM market, has been pushing down sales of the memory chips, affecting many company’s earnings, such as Elpida.
Elpida now plans to transform its Hiroshima plant, its only DRAM facility in Japan, into a base specialising in chips for portable devices, Nikkei reckons.