Talk about a rebound. Heading into this year, chipmakers were in trouble. Prices of benchmark dynamic random access memory (D-Ram) chips, which help power most computers, fell from a high of more than $6 in 2007 to just 85 cents in January. The slide, exacerbated by recession, pushed German chipmaker Qimonda into bankruptcy. Some Taiwanese rivals, beset by overcapacity – during the boom, the Taiwanese accounted for almost half of $23bn of global D-Ram capital spending – looked to be following close behind. Things got so bad that by March that Taipei uncorked a plan to consolidate the local industry, whose companies account for about a quarter of global supply.

But prices have since rallied more than three-fold since January, according to DRAMeXchange. Chipmakers have mothballed excess capacity. Demand is also perking up, as PC makers buy components ahead of an expected recovery in tech spending. Government-backed Taiwan Memory Company, launched to restructure the sector, has fallen quiet. Investors have returned; shares of local chipmakers such as Powerchip, Nanya and Inotera have risen 60-70 per cent from recent lows.

However welcome the recovery has been for Taiwan's beleaguered chipmakers, delaying an industry reshuffle would be short-sighted. The problem is similar to that of airlines in the US, where favourable bankruptcy laws mean the underlying cause of excess capacity is not addressed. Rising memory prices mean that financially stretched companies, such as Powerchip with debt of about four times earnings before interest, tax, depreciation and amortisation, are finding ways to generate cash needed to keep creditors at bay. Taiwanese chipmakers' margins have outperformed those of their overseas rivals in previous upswings. Short term, their rally may have room left to run. But the longer the weakest groups struggle on, the greater the risk of a return of oversupply.