Nanya Chairman Chia Chau Wu told Reuters on Monday that he did not know of any deal between the other two companies and the company had no current intention to take part in any deal. He declined to comment on whether Nanya would welcome any such tie-up.

Japan's Nikkei business newspaper reported last week that Elpida would seek to eventually include Nanya's parent company, Formosa Plastics Group, in a deal for a capital infusion into the debt-laden Japanese company.

The three companies are makers of dynamic random access memory (DRAM) chips, a market that has been hit by slumping prices in a weak economy and falling sales as consumers switch to tablets that use flash memory instead of DRAM chips.

"It could be a sales strategy," said Joyce Yang, chief executive of Eureka International Corp, a Taipei-based semiconductor industry research company.

"Nanya's market share is not high, but together with Micron and Elpida, the three will become the No.2 in the market, exceeding Hynix."

Hynix Semiconductor Inc had around 20 percent share of the DRAM market as of the end of the third quarter of 2011, behind compatriot Samsung Electronics Co with a 45 percent share.

Micron and Elpida both had around 12 percent each and Nanya had around 4 percent.

Yang said Nanya and Micron would benefit from any tie-up especially in the mobile DRAM market, where Elpida has a higher penetration, being No. 2 last year.

Currently, Nanya and Micron have a cooperation agreement on chip manufacturing, while Elpida owns a joint venture with Taiwan's Powerchip, called Rexchip. Nanya and Elpida are also involved in a patent lawsuit.

For Taiwan's DRAM makers, lacking the deep pockets of Samsung Electronics to pay for the increasing costs of investment in new manufacturing technology, analysts say their choices are to move into higher-value chips, tie up with foreign partners, seek government help or simply fade out.

"Price competition could ease a little bit in the short run," said IBTS Investment Consultation Co analyst Fred Yu, commenting on the possible tie-up of Nanya with Micron and Elpida.

"But in the long run, demand for DRAM is still shrinking; these memory companies will all be gone if they don't start expanding into NAND flash aggressively, no matter how many mergers they do."

At 0353 GMT, Nanya was limit-up at 6.6 percent in Taipei, while Elpida slipped 2.37 percent in Tokyo. Elpida's Taiwan depositary receipts however climbed 2.7 percent.

(Editing by Jonathan Standing)

• A Permanent Economic Emergency