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South Korea Chipmakers Rally on DRAM Rebound Talk

South Korean chip makers rallied on Friday, with Samsung Electronics up as much as 4.5%, on market talk spot prices for DRAM memory chips had rebounded, sparking speculation prices may have bottomed.

Chipmakers, which had been hit hard in May by worries that tumbling dynamic random access memory (DRAM) chip prices would deeply hurt their second-quarter earnings, also advanced following a rise in U.S. peers and earnings results from U.S. computer maker Dell that topped consensus forecasts.

Hynix Semiconductor, the world's No. 2 DRAM maker, surged 5.74% to 30,400 won after earlier gaining as much as 6.6%.

The DRAM industry has suffered sharp price drops as makers continued to flood the market, despite low seasonal demand for computers, and some key chips have seen price declines of more than 70% since the beginning of the year.

In mid-May, an executive at Hynix had told Reuters he hoped to see a DRAM turnaround in July or August.

"The price of the 512 Mb DDR2 chip reached a bottom of $1.68 on May 22," said Song Myung-sup, an analyst with CJ Investment & Securities, referring to a widely used type of DRAM chip. "The price stabilized there for while and just recently started to move higher. That's in part because DRAM makers decided they couldn't keep selling their chips at cash cost and reduced their output while increasing inventory."

Many in the market are adopting a wait-and-see stance on a possible DRAM turnaround.

"We still need some more time to confirm whether we are about to see a recovery in DRAM memory chip prices. But it is possible. DRAM prices are so cheap now, it could have hit a bottom," said Kim Hyun-tae, a fund manager at Landmark Investment Management.

Analysts say Hynix is in particular danger of posting dismal results for the second quarter, and is likely to struggle in the third quarter as well. CJ's Song predicts an operating loss of about 180 billion won for the second quarter, followed by a small profit in the seasonally favorable third quarter.

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