According to vice president of Nanya Technology, Pai Pei-Lin, contract prices for DRAM chips will continue to rise next month, and he foresees a supply shortage next year as the demand for PC replacement outpaces capacity expansion.

In somewhat of a domino effect, Pai predicts that Windows 7 will induce a long overdue upgrade cycle that has been put off because of disinterest in Vista. This will further raise demand for DRAM chips, until memory makers simply can't churn out enough product.

Contract prices of DDR2 chips have been steadily climbing since August, rising beyond DDR3 prices in October, a trend that will likely continue in the coming months as major vendors adopt DDR3 for some 50% of their memory needs. The average contract price of 1Gb DDR2 667MHz chips rose 15.7% to $2.06 in early October, while 1Gb DDR3 1066MHz chips were $1.94, up 10.9%.