June 9 (Bloomberg) -- Elpida Memory Inc., Japan's only maker of the main memory chips used in computers, plans to spend 500 billion yen ($4.6 billion) in the next three years to build the world's biggest factory for the chips.

The factory, which will make dynamic random access memory chips, will be built near an existing plant, said Yukio Sakamoto, president of Elpida. The Tokyo-based venture between Hitachi Ltd. and NEC Corp. will release more details tomorrow, Sakamoto said.

Elpida, which is the sixth-biggest maker of the memory chips, is seeking to grab a larger slice of a market that researcher iSuppli Corp. forecasts to grow 46 percent to $25.2 billion this year as demand from companies buying computers rebounds. Samsung Electronics Co. the market leader, in March forecast a global shortage of the chips in the third quarter.

``Elpida wants to capture more market share with more volume,'' Nam Hyung Kim, a Principal Analyst for El Segundo, California-based iSuppli. ``It will take time to ramp up mass production,'' said Kim, adding that full output may not occur until as late as 2007.

Construction of the plant in Hiroshima, southwestern Japan, which would have more than twice the capacity of the largest current generation facilities, will be financed by the sale of new shares and bonds, the Nihon Keizai said, without saying where it obtained the information. Elpida will also borrow from banks, the report said.

Deutsche Bank

Deutsche Bank AG was hired to help manage an initial public offering by Elpida, bankers familiar with the situation told Bloomberg in January. The company intended the share sale to help raise about 100 billion yen, the bankers said.

Elpida's Sakamoto didn't give further details on the plan. The company last year raised 170 billion yen from investors and companies including Intel Corp. to raise dynamic random access memory chip output at the existing Hiroshima plant.

Elpida expects demand for the chips will increase for use in mobile phones and digital household appliances, according to the Nihon Keizai.

The company had a 4 percent share of the market, according to data compiled by Gartner Inc., compared with Suwon, South Korea- based Samsung's 29 percent share.

The company also plans to boost monthly output capacity for 300-millimeter silicon wafers, from which the chips are cut, at an existing Hiroshima plant to 28,000 by year's end from 21,000 currently, the report said.

Combined output at the two plants is projected to be about 90,000 by 2007 when the new facility is at full capacity, according to the report.

Global shipments of semiconductors will rise more than a quarter to a record $213.6 billion this year because of increasing demand for mobile phones, digital cameras, computers and other electronic goods, the World Semiconductor Trade Statistics said earlier this month.

NEC's shares fell 0.9 percent to 787 yen, while Hitachi shares fell 0.5 percent to 762 yen as of 10:28 a.m. Japan time on the Tokyo Stock Exchange.

To contact the reporter on this story: Hiroshi Suzuki in Tokyo at at Hsuzuki5@bloomberg.net

Last Updated: June 8, 2004 21:37 EDT