Micron Technology, one of the world's largest DRAM (dynamic RAM) chip makers, is in talks with Taiwan's Nanya Technology to research new chip technology and jointly invest in a state-of-the-art chip factory.

The two companies signed a memorandum of understanding Monday to jointly develop and design DRAM with transistors smaller than 50 nanometers. The term nanometer refers to the smallest parts on a chip. The smaller the components, the more powerful and energy-efficient the chip. There are about three to six atoms in a nanometer and there are a billion nanometers in a meter.

The deal could spell trouble for Germany's Qimonda AG, Nanya's current technology partner. Nanya plans to let its current technology agreement with Qimonda expire once reaching 50-nanometers. For more advanced, sub-50-nanometer technology, Nanya will work with Micron, said Moor Chen, a senior vice president at Nanya, in a phone interview.

Nanya is not currently in discussions with Qimonda to extend its technology deal with the German company, Chen said, adding that Micron and Nanya will sign a formal contract in the second quarter.

The loss of Nanya Technology as a technology partner deals a blow to Qimonda because the two companies had shared R&D costs and jointly own an advanced chip company in Taiwan, called Inotera Memories.

Some analysts had speculated that Qimonda's DRAM production technology might be a problem because of difficulty manufacturing chips with ever smaller transistors on board. In DRAM, advances in manufacturing technology are all-important because they reduce costs for companies and give them an edge over rivals.

Qimonda's chip production technology is known as "trench" and it's far less widely used than the "stack" technology used by Micron, Samsung, Hynix and most of Qimonda's other major rivals. Pundits have said that as chip production process technologies continue to shrink the size of features on a chip, "trench" technology simply doesn't work as well as "stack."

But last week, Qimonda announced a breakthrough in chip technology to 30 nanometers, although it would involve converting its production lines to new "Buried Wordline" technology from its "trench" technology. The chip maker expects to spend €100 million (US$151.8 million) total in 2009-2010 to on converting the production lines.

Nanya Technology will also have to convert its production lines from "trench" to "stack" technology should it sign an agreement with Micron, but the company declined to speculate on how much that might cost.

Several other chip makers currently use Qimonda's manufacturing technology, including Winbond Electronics and Inotera Memories of Taiwan, and SMIC in China.