Taiwan's pivotal memory chip industry is facing tough times as international demand for high-tech products plunges in the midst of the deepening downturn gripping the global economy.

Long regarded as one of the island's two major information technology pillars, the island's manufacturers of dynamic random access memory (DRAM) chips recently reached out to the government for bailout funds.

"All of them have cut production as well as salaries and forced staff to take unpaid leave," said an analyst of Mega International Investment Services, who asked not to be named.

Frank Huang, chairman of Taiwan's leading DRAM maker, Powerchip Semiconductor Corp, said his company is tackling its "biggest ever challenges".

The island's makers of liquid crystal display (LCD) products are also being severely hammered by the decline in demand.

In the nine months to September, the island's four major DRAM makers jointly booked a record net loss of more than 90 billion Taiwan dollars (2.74 billion US), with a full-year loss surging to 120 billion Taiwan dollars, industry figures show.

Analysts say there is no light at the end of the tunnel as DRAM prices are falling far below production costs -- so the more producers sell, the greater their debt.

The most vulnerable among them is cash-strapped ProMOS Technologies Inc, which has 11.1 billion Taiwan dollars worth of overseas convertible bonds due on February 14.

Rival Powerchip is in no better shape, with 15 billion Taiwan dollars in loans and convertible bonds due in the first half of this year.

Taiwan's Premier Liu Chao-shiuan said last month the government would assist local DRAM makers, though he gave no details of a bailout plan.

He did however detail concerns about the lack of core technology owned by local DRAM makers, the main reason cited for not providing bailout funds.

ProMos, for instance, first acquired production technology from Germany's Qimonda and since 2005 has transferred the advanced 90 and 70 nanometre production technologies from South Korea's Hynix.

Powerchip and Nanya Technology Corp have separately transferred technologies from Japan's Elpida and Micron of the United States. Nanya and Micron have also operated a joint venture called Inotera Memories.

Unlike their bigger competitors Samsung Electronics, Hynix Semiconductor, Elpida and Micron Technology Inc, which also produce the higher-priced NAND flash memories and mobile telecommunication memories, Taiwanese DRAM makers have been focusing on low-priced commodity DRAMs for computers.

Taiwan's DRAM chip makers booked healthy profits from 2004-06 on the back of strong global demand and a shortage of supplies in the industry cycle begun in 2000, when chip makers were slashing capital investment.

The cycle began its downturn in 2007 when global supplies of memories chips surged by nearly 90 percent but demand grew only 70 percent.

The subsequent oversupply was aggravated last year as the world's DRAM makers refused until recently to cut output for fear of losing market share.

Samsung remained the global DRAM industry leader, grabbing a comfortable 30.7 percent of world market share as of the third quarter of 2007.

Hynix came in second with 18.6 percent, Elpida with 15.3 percent, Micron with 11.2 percent, Qimonda with 8.7 percent.

Taiwan's Powerchip, ProMOS and Nanya together took 11.7 percent, government figures show.

Despite a lack of core technology, Taiwanese DRAM makers had built their fast-increasing capacity on huge loans.

"Taiwan DRAM makers operated well in the good times but when the rare bad times, like now, start to bite, it is too much for them," the Mega International analyst said.

Some industry observers argue that the sector is more than just the much-touted "pride of Taiwan". Local creditor banks, they say, would be crippled if the sector collapsed, and more than 20,000 jobs would be lost.

Should that happen, Taiwan's microchip testing and packaging industry -- as well as its giant notebook computer sector, the biggest in the world -- would also be in deep trouble, they warn.

DRAMs are used comprehensively in products ranging from cars and home appliances to computers and cell phones.

"Taiwan cannot afford to lose the DRAM industry," said Chen Ching-wen, president of the Topology Research Institute in Taipei.

Local DRAM makers' combined outstanding loans total 420 billion Taiwan dollars, according to government statistics.

While the Taiwanese government is drafting ways to assist the DRAM industry, senior executives of Elpida, Micron and ProMOS have recently been visiting the island's economic ministry in hopes of securing their future.