Asian chipmakers are set to deliver another set of strong results and cement growing views that the global technology sector's recovery is accelerating as an economic recovery boosts corporate and consumer spending.
Better-than-expected demand for personal computers and limited output by smaller players have boosted prices of dynamic random access memory (DRAM) and NAND memory chips, benefiting sector leaders such as Samsung Electronics <005930.KS>, Hynix Semiconductor <000660.KS> and Toshiba <6502.T>.
Demand growth will be stronger than in the previous upcycle as smartphone and tablet PC markets are added as a new customer segment on top of reviving personal computer sales, said Greg Noh, an analyst at HMC Investment & Securities.
The sector's history is marked with volatile cycles of shortages and oversupply and some analysts have warned the industry could be setting itself up for a supply glut.
Memory chipmakers have returned to profit since late last year after several quarters of losses, as prices rebound and PC demand grows, aided by strong growth from China.
Samsung's chip business, which reported 670 billion won operating loss a year ago, is expected to swing to a profit of more than 2 trillion won, making up half of the firm's entire profit, which it estimated at a record 4.3 trillion won.
Consolidated chip operating profit margin at Samsung, the world's biggest maker of both DRAM and NAND, may have also improved to around 23 percent from the previous quarter's 21 percent and 13 percent loss a year ago.
Japan's Elpida may report record quarterly operating profit, while bigger rival Hynix of South Korea is set to show an 8 percent quarterly gain in profit from the preceding quarter.
But smaller rival Nanya Technology Corp <2408.TW>, Taiwan's No.2 computer memory chipmaker, remained in the red in January-March, although its net loss narrowed sharply from a year ago.
Samsung shares have gained 3.5 percent so far this year while Hynix is up 17 percent, beating a 2 percent gain in the wider market <.KS11>. Toshiba shares added 0.8 percent and Elpida jumped 35 percent against a 4 percent rise in the Nikkei <.N225> this year.
On Tuesday, investors will get clues on the outlook of NAND chips, used in mobile phones, digital cameras and other hand-held gadgets, as Apple , the maker of iPhone and iPad, may offer sales forecast for its key products.
After well over a year of depressed spending on technology purchases, businesses are widely expected to open their wallets, as they upgrade aging IT hardware, but a growing list of chip makers with new investment plans threatens to push the sector back into volatile oversupply cycle.
We must watch carefully if this (strong trading) trend continues into the second half, and if corporate replacement demand for servers and PCs will materialize as people are expecting, said Deutsche Securities analyst Takeo Miyamoto.
Sector leader Samsung is widely expected to raise this year's capital spending on memory chips by around $2.5 billion, joining Elpida, Powerchip and Nanya, which have already announced big investment plans.
Elpida plans to double its capital spending to $1 billion in the current financial year, while Powerchip Semiconductor Corp <5346.TWO>, Taiwan's top PC memory chipmaker, and Nanya are planning spending increase of between 16 and 18 percent.
Company Jan-March profit Year ago (loss) Prior quarter Date *Samsung 4.1 trln won 470 bln won 3.7 trln won April 30
Hynix 767 bln won (515 bln won) 708 bln won April 22 *Toshiba 91.55 bln yen (74.02 bln yen) 10.22 bln yen May 7
Elpida 30.79 bln yen (49.39 bln yen) 30.45 bln yen May 12
NOTE: Estimates are based on data from Thomson Reuters I/B/E/S.
* Figures are operating profit/loss and numbers for Samsung and Toshiba are for the entire company, not just for the chips business.
(Additional reporting by Kiyoshi Takenaka in TOKYO; Editing by Anshuman Daga)