UPDATE 1-Taiwan's Powerchip cuts DRAM output further

(Adds analyst comments, updates share prices)

TAIPEI, Dec 23 (Reuters) - Powerchip (5346.TWO), Taiwan's biggest DRAM memory chip maker, said on Tuesday it had deepened its previous output cuts and applied for government assistance as the sector struggles with its worst-ever downturn.

Starting this month, the company has cut its output by 20-25 percent from pre-September levels, Eric Tang, vice president and the company's spokesman, said. It had previously announced that starting in September it would cut its output by 15 percent.

The spokesman added that Powerchip Semiconductor Corp had applied to the government for assistance, making the company the second major DRAM maker in Taiwan to apply for such help after rival ProMOS Technologies (5387.TWO).

Tang said Japan's Elpida (6665.T) is set to deliver a plan for a possible technology tie-up with Powerchip by the end of this week, as the government looks for ways to rescue the struggling sector.

By 0257 GMT, Powerchip shares were down by their daily limit 6.85 percent and ProMOS shares fell 6.9 percent. Taiwan's main TAIEX share index shed 3.5 percent.

Nigel Lee, a fund manager at Taiwan's National Investment Trust, said most DRAM makers would still be swimming in the red in the coming months even though they rushed to cut production.

"Demand is a big concern and we don't think a strong recovery will be seen in the short term," Lee said. "Consolidation might be the only way to help the sector."

Talk about consolidation has swirled through the global DRAM industry in recent months, as the sector streamlines to help adapt to a large oversupply of dynamic random access memory (DRAM) chips, which are used mostly in personal computers.