UPDATE 1-Sony and Qimonda to form DRAM joint venture

CHIBA, Japan Oct 2 (Reuters) - Japan's Sony Corp (6758.T) will form a joint venture with chip maker Qimonda QI.N to design microchips for its mobile phones, digital cameras and other consumer electronics to cut development costs.

Sony and Qimonda, a unit of German semiconductor maker Infineon (IFXGn.DE) said on Tuesday that they would form a 50-50 joint venture to design DRAM (dynamic random access memory) chips, aiming to start operations by the end of 2007.

Shares of Elpida Memory Inc (6665.T), which supplies DRAM chips to Sony, fell on the news on fears that this would hurt its sales. Sony shares rose on hopes of cost cuts at its struggling chip unit.

The announcement comes as falling prices of DRAM are squeezing margins throughout the DRAM industry, led by South Korea's Samsung Electronics Co Ltd (005930.KS). Analysts have said that DRAM makers may need to pool their resources for long-term growth.

Sony and Qimonda will launch the joint venture, called Qreatic Design in Tokyo, with 30 specialists from the two firms.

Demand for DRAM, most commonly used in PCs, is growing from makers of mobile phones, digital cameras and video game consoles that increasingly require more data storage.

Shares of Sony rose 2.5 percent to 5,790 yen during morning trade. Shares of Elpida fell 2.7 percent to 3,980 yen, while the benchmark Nikkei average .N225 rose 1.69 percent.