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Memory Chip Market Recovering

Rising demand and limited supply will boost prices for DDR3 DRAM chips in the second half of the year, iSuppli says.

The global memory-chip market is recovering from the oversupply that has plagued the industry for three years, prompting researcher iSuppli to raise its rating for near-term market conditions to positive from neutral.

iSuppli had maintained a negative rating for the DRAM market since September 2008 before raising it to neutral. DRAM, or dynamic random access memory, provides the system memory in PCs, servers, and other computing devices.

"With rising demand and limited supply for DDR3, the global DRAM industry is set for a sustainable recovery that will extend into the fourth quarter and pave the way for a robust annual increase in 2010," iSuppli analyst Nam Hyung Kim said in a statement.

DDR3 is a DRAM interface specification for high-bandwidth storage of the working data of a computer or other electronic device. DDR3 is able to transfer at twice the data rate of DDR2, enabling higher bus rates and peak rates than earlier memory technologies. Computer makers are in the process of moving product lines over to DDR3, and DRAM suppliers have reported a shortage of chips, iSuppli said.

DRAM revenue fell 19.5% in the first quarter compared to the fourth quarter of 2008. However, prices started to rise in the second quarter, resulting in a 37.9% increase in revenue over the first quarter. iSuppli predicts revenue will continue to rise on a sequential basis by more than 20% in the third and fourth quarters.

While rising prices is good news for DRAM suppliers, it's not so positive for PC makers.

"Prices are rising in the third quarter, a time when DRAM buyers typically begin to make purchases for the holiday season," Kim said. "Adding to the current tight supply for notebook LCD panels, the increase in DRAM prices will result in lower profitability for the PC makers in the second half of the year."

PC makers are seeing the beginnings of a recovery in their own market, which saw declining sales due to the economic recession. Shipments of desktops and laptops in the second quarter fell by half of what was expected, according to IDC. Combined with other economic factors, the better-than-expected performance is an indication that the industry is poised to return to growth by the end of the year.

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