This is, of course, bad news if you’re in the business of making the commodity Dynamic Random Access Memory chips that go into PCs, servers and smartphones. A state of oversupply coupled with weak demand means the chips command lower prices than they otherwise would. The situation can be good, however, if you’re buying computers, because memory upgrades get cheaper.

The problem, as related by the research firm IHS iSuppli, is a rise in inventories of chips that its analyst Mike Howard describes as “alarming.”

ISuppli measures how much unsold inventory the chipmakers themselves have in their warehouses — which include Micron Technology in the U.S., Elpida in Japan, and the South Korean pair of Samsung and Hynix. The higher the number is, the more intense the downward price pressure becomes.

The stockpile of DRAM chips as of the end of the third quarter of 2011 stood at 12.8 weeks, which is nearly a third higher than it had been three months earlier and double what it was in early 2010. It’s also a lot higher than the typical average of 9.2 weeks.

There are a lot of factors creating the glut. Tablets like the iPad and Kindle Fire are eating into notebook sales, and don’t require nearly as much DRAM as notebooks do. And new operating systems don’t require the incremental boost in onboard memory as had been typical.

Nor is the economic uncertainty caused by the sovereign debt crisis in Europe helping. Flooding in Thailand has also disrupted the supply of hard drives which has in turn affected the overall demand for PCs and servers. Computer makers who can’t get hard drives simply won’t build as many computers, and thus won’t be buying the DRAM they otherwise would be.

Something similar happened in 2008 when the global recession sapped computer demand and caused a pileup of DRAM chips that lasted nine quarters. This cycle could turn out to be worse, iSuppli says.

Overall, iSuppli reckons the market for DRAM chips was worth about $6 billion in the fourth quarter of 2011, down by 11 percent from the prior quarter, and it’s only heading further south. The worst, Howard says, is apparently yet to come.

If the economy turns upward, or even is perceived to be on the mend, the glut can work its way down pretty quickly. In 2009 the stockpile dropped by more than half over three quarters.

And if it seems obvious that these chip companies should just stop making DRAM and let demand catch up with supply, it’s actually not that easy. Chip factories, or fabs, contain billions of dollars worth of manufacturing equipment running processes that are difficult to stop and start. Also, it’s more expensive to have them sitting there doing nothing but depreciating than turning out a product that brings in revenue, even if it’s running at break-even or a slight loss.

In addition, the U.S. Court of Appeals for the Federal Circuit ordered the trial court to again look at whether Rambus wrongly destroyed documents in the Hynix case.

In a separate case involving Micron Inc., the appeals court determined Rambus had wrongly destroyed documents and ordered the trial court to examine again whether that destruction justifies dismissing Rambus’s patent claims against Micron. Micron initially won a dismissal because the trial court said Rambus’s claims were unenforceable because of the document destruction.

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I’ve just heard from someone who says they’ve received an email from Crucial.com, the Web retailer of computer memory owned by the chipmaker Micron, that data on its users was compromised. I’ve also heard form customers of Fred Meyer, Fry’s, Brookstone, 1-800-Flowers and the recruiting firm Robert Half International saying they’ve received similar emails.

However, now we’re getting into phase two of this mess. Whoever the original attackers are, they may be starting to carry out phishing attacks against the people whose information was taken from Epsilon. There’s been at least one report out of North Carolina of emails going to customers of a Chase Bank that aren’t really from that bank. Given that phishing attacks are a daily occurrence, however, it’s hard to specifically pin down this one as being related to the Epsilon breach. But the fact that it’s being mentioned at all indicates how much anxiety about phishing attacks has escalated in the days since the breach was disclosed.

It being the height of tax season, Intuit, maker of Turbotax, the most popular tax preparation software on the market, published a security alert to its customers today. Though it’s not an Epsilon customer, it said that–given that so many banks are among those affected–it thought it should offer some tips on how to detect a phishing attack and what to do and not do. Its advice bears repeating: When in doubt, don’t click on links in an email sent by a bank, retailer or other institution.

Meanwhile, shares in Epsilon’s parent company, Allied Data Systems, don’t seem to be feeling any further ill effects from all the negative attention. Its shares finished the day up 38 cents to close at $84.12, and the stock is up about 16 percent since the start of the year. The company was in damage control mode today, saying that it was working with federal authorities and outside computer forensics experts to investigate how the breach happened and who did it and to ensure that additional security measures are put in place to make sure it doesn’t happen again.

And even though Epsilon represented about 22 percent of Allied Data’s revenues last year, the company said that it expects the incident to have “minimal if any impact” on its overall financial performance for the foreseeable future, and that the breach affects only about two percent of Epsilon’s total client base. That may not sound like a large number, but when you consider that Epsilon has about 2,500 clients, and that two percent of that is 50 companies, most of them large, household name companies, it’s hard to minimize the number of people potentially affected. Allied Data’s biggest concern now, it says, is to regain the trust of its clients–that is, the companies on whose behalf it sends marketing email messages.

But the teardown that Wall Street and the investment community is waiting on is the one from the market research firm IHS iSuppli, whose team spent all day Saturday in a furious effort to dissemble a 32-gigabyte iPad 2 and estimate the cost that Apple paid for every component. They gave me an exclusive early look at their findings.

The point is to form a partial picture of the gross profit margin on every unit, a figure that Apple generally keeps to itself. This information is useful to investors and analysts who then factor the findings in with other assumptions they use to predict how much of a profit Apple is going to report over the next few quarters.

The headline of iSuppli’s teardown researcher is always the estimated bill-of-materials cost, which is the sum cost that it thinks Apple has paid for all the hardware inside the iPad 2. It doesn’t take into account the cost to develop software, or other things like packaging, shipping and distribution, or manufacturing.

In this case the estimates are for the 32-gigabyte, 3G version of the iPad which sells for $729, and there are two estimates, one for the AT&T version–$326.60, and one for the Verizon Wireless version–$323.35. Some of the wireless chips used in the AT&T version are a little more expensive or require an extra part. For example, on the Verizon version, GPS is integrated with the Qualcomm-made wireless baseband chip. On the AT&T version, an extra GPS chip had to be added along with the Broadcom-made Bluteooth and Wi-Fi chips, adding an extra cost of $1.50 per unit.

The baseband wireless chips were naturally different because AT&T and Verizon use different wireless technologies. Intel, the new owner of the former wireless chip division of Infineon, supplied the main wireless chip in the AT&T version, with supporting chips coming from TriQuint Semiconductor and Skyworks for a combined cost of $18.70.

Qualcomm supplied the main wireless chip Verizon version, with supporting chips coming from Skyworks, Avago Technologies, and Murata for a combined cost of $16.35. While there had been some speculation that Apple had used a Qualcomm chip in both versions, but it turned out not to be the case.

Aside from the wireless chips, the components are otherwise identical across both versions. Both sport Apple’s A5 chip, and iSuppli says that Samsung is still manufacturing it for Apple at a cost of $14. While there had been some talk in recent weeks that Apple was moving its chip manufacturing contract to Tawain Semiconductor Manufacturing Corp, there’s no evidence that it has made such a move, at least not yet.

The most expensive component by far is the touch-sensitive display, coming at $127. ISuppli says that the LCD portion the unit they tore apart was built by LG Display, but Apple is known to use other sources for displays, including Samsung, and possibly ChiMei Innolux. The glass assembly covering the display is thought to come from TPK or WinTek. ISuppli says costs on the display are going up because manufacturing yields on LCDs have been lower. Apple is also thought to be using a more expensive glue to improve the efficiency of the process of bonding a new thinner type of Gorilla glass to the display.

Samsung supplied Apple with the NAND flash memory used in the iSuppli sample, holding on to a relationship that goes back several years to the days of the first iPod nano, though Toshiba is also known to supply Apple with flash. It is the world biggest consumer of flash memory, after all. Elpida supplied the DRAM memory. ISuppli estimates the combined cost of memory, both flash and DRAM plus a Micron-made MCP memory chip at $65.70.

Then there’s a set of components seen in the iPad 1 that remained the same in the iPad 2. STMicroelectronics supplied the gyroscope and the accelerometer, and AKM Semiconductor supplied the electronic compass. Broadcom supplied touch interface chips, while Texas Instruments supplied a touch screen driver chip. Analog Devices supplied a capacitive touch controller.

Finally there are the two cameras. ISuppli hasn’t yet named the suppliers there, though the usual candidate is Aptina, the former camera unit of Micron, though it’s possible that Apple sources them from more than one place.

ISuppli’s estimates are a lot higher than the findings of another teardown shop, UBM Techinsights. The Wall Street Journal reported that UBM’s cost estimate is about $270, but that estimate was made before it conducted its actual teardown, and didn’t change once it had.

DRAM is the ultimate commodity chip market, and its boom-or-bust cycles are legendary. When demand picks up, manufacturers like Samsung, Hynix and Micron always rush to add manufacturing capacity–prices pick up; chips become scarce.

Everything seemed to be going well for the chip companies until the third quarter of 2010. After five straight quarters where the average price for a DRAM chip increased, it suddenly turned south as demand for notebook PCs slacked. That’s in line with what Gartner and IDC reported yesterday about the PC market.

There’s good news for consumers, however. All that stacked-up inventory has to go somewhere. If you’re planning to buy a notebook this year, the base models will now start shipping with four gigabytes of memory instead of two. And for those who bought a machine with only two in the last year or so, upgrades will be more affordable.

The one bright spot for the memory companies? You got it: Smartphones and tablets. Memory content in phones is expected to increase by nearly two-thirds. And the 57 million tablets that iSuppli expects will ship this year will also need some DRAM. More details here from iSuppli.

Memory chips, both DRAM and Flash memory, had a lot to do with this. DRAM sales grew by 80 percent, and Flash memory grew by 40 percent. But every market segment save for one saw double-digit growth. Good news for Samsung, Micron and Hynix.

The one thing I’ve learned in watching chip markets over a dozen years or so is that booms don’t last. ISuppli is predicting a much slower growth rate of 5 percent for 2011.

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Interestingly, the move follows an investment by another high-profile licensee: Intel. The chipmaker last week increased its own stake in Imagination to 14 16 percent, causing some to speculate that Intel (INTC) was prepping a takeover bid for the company. After all, Intel uses PowerVR in its Atom platform, which is crucial to its success on the mobile phone market.

Could these dueling investments set the stage for a takeover battle for the company? It’s certainly possible, but Seymour Pierce analyst Ian Robertson says it’s unlikely.

“Apple and Intel are investors not buyers,” Robertson said in a research note. “We do not expect either Intel or Apple to go beyond 15-20 percent in the short to medium term and we would be very surprised indeed if they were to attempt to buy Imagination. We note that both Apple and Intel have the resources to swallow up the company without chewing. We remind investors that Intel has a long history of taking and holding significant stakes in companies that it has seen as important to its further success–notably Micron and RAMBUS where its investment was not necessarily a guarantee of success for these companies.”

The memory chip company posted revenue of $1.45 billion, below the Street consensus at $1.54 billion. The company lost $344 million in the quarter, including a $205 million write-down of inventory and work in progress, offset by a gain of $70 million for price adjustments for NAND products purchased from other suppliers in prior periods. Before those items, the company lost $209 million, or 27 cents a share; the Street had expected a loss of 23 cents a share.

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Last night, SanDisk (SNDK) reported an extremely nasty June quarter earnings report–the Street has responded with a host of downgrades. Meanwhile, this morning, Citigroup chip analyst Glen Yeung cut his ratings on Micron (MU), Qimonda (QI) and Spansion (SPSN) to Hold from Buy. The result is that all of the stocks in the beleaguered sector are getting pummeled. Again.

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