SEOUL (Reuters) – 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 . Toshiba shares added 0.8 percent and Elpida jumped 35 percent against a 4 percent rise in the Nikkei .N225 this year.

SOME CAUTION

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 (AAPL.O), 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.

($1=1118.1 Won)

(Additional reporting by Kiyoshi Takenaka in TOKYO; Editing by Anshuman Daga)

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BEIJING (Reuters) – China chalked up unexpectedly strong annual growth of 11.9 percent in the first quarter, prompting renewed calls for tighter policies to prevent the economy from overheating and stoking speculation of when Beijing will loosen its grip on the yuan.

China

The rate of expansion, the fastest since 2007 and above the median forecast of 11.5 percent in a Reuters poll, was flattered by a low base of comparison a year earlier, when the economy was reeling from the global financial crisis.

But economists said the figures, released on Thursday by the National Bureau of Statistics, were unquestionably sturdy and would justify a firmer policy stance.

Some, but by no means all, economists advocated a pre-emptive rise in interest rates to curb inflationary pressures, while Glenn Maguire with Societe Generale in Hong Kong said he favored a prompt revaluation of China’s currency.

“Yuan stability and China’s stimulus package made an enormous contribution to global stability in the aftermath of the crisis, but now that China’s economy is growing by 12 percent, it’s time for China to share some of that growth with the rest of the world via appreciating its exchange rate,” he said.

The Commerce Ministry promptly reaffirmed its opposition to a stronger yuan. A spokesman said Washington was wrong to argue that, by holding down the currency, Beijing was giving Chinese exporters an unfair competitive edge and thereby contributing to near double-digit U.S. unemployment.

The yuan, also known as the renminbi, rose modestly in the offshore forwards market, which was pricing in a 3.3 percent rise against the dollar over the next year.

That was only a bit stronger than the day before, even though Singapore had fanned market talk of yuan appreciation by pushing up the value of the Singapore dollar on Wednesday in response to blistering growth data.

LONGER-RUN CONSIDERATIONS

Mark Williams with Capital Economics in London said the mildness of price pressures in China meant there was no pressing economic reason for Beijing to let the yuan rise after keeping it pegged near 6.83 per dollar for the past 21 months.

The consumer price index rose just 2.4 percent in the year to March, below market expectations of a 2.6 percent increase.

“However, economic rebalancing would in the long run be better served by having a stronger currency,” Williams said.

He expects a shift in both interest rates and the yuan over the next quarter — but with an eye on the medium-term benefits of a stronger currency and higher interest rates.

“As a result, the pace of movement will be slow,” he said in a note.

So far this year the central bank has twice raised the proportion of deposits that banks must hold in reserve and has also aggressively drained cash from the banking system.

But unlike a clutch of Asian neighbors, including India and Malaysia, China has kept its benchmark interest rates unchanged even though it is leading the global recovery charge.

“The government is faced with an unpalatable choice: raise rates and dampen the ardor of investors in the real estate sector, or leave rates on hold and allow the property bubble to expand further, and risk inflationary expectations taking hold,” said Tom Orlik with Stone & McCarthy Research in Beijing.

Instead of acting through interest rates or the exchange rate, the central bank has relied so far on curbing credit growth to keep the economy on an even keel.

This year’s quota for new bank lending has been cut to 7.5 trillion yuan from a record 9.6 trillion yuan in 2009 when banks lent freely at the government’s behest to support a 4 trillion yuan fiscal stimulus package — spending that Beijing is now gradually winding back.

The government has been taking particular aim at the bubbly property market, where prices nationwide leapt 11.7 percent in the year to March and much faster in major cities.

In a fresh salvo against speculators, the cabinet on Thursday raised mortgage rates and down payment requirements for investment properties. Buyers may now borrow only 50 percent of the cost of a second home, down from 60 percent previously.

“This will have an immediate impact on speculative house buyers,” said Huang Qinglin, a property analyst with Great Wall Securities in Shenzhen.

TOO LITTLE, TOO LATE

The worry for some economists is that Beijing is nevertheless falling behind the curve.

The State Council, China’s cabinet, promised on Wednesday after a preview of the data to stick to the “appropriately loose” monetary stance and active fiscal policy first adopted at the height of the global financial crisis in late 2008.

“Growth is running too hot. It requires policy tightening,” said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong. He called Thursday’s data “a dangerous mix” because the low inflation reading would delay a rise in borrowing costs.

J.P. Morgan, CLSA, Citi and Barclays Capital were among banks that promptly raised their growth forecasts for 2010, a year in which China will almost certainly overtake Japan to become the biggest economy in the world after the United States.

In addition to quarterly GDP, China released a batch of figures for March that were strong and close to expectations.

Retail sales rose 18.0 percent from a year earlier, factory output grew 18.1 percent, and urban investment in fixed assets like roads and factories rose 26.4 percent in the first quarter.

“This year, the economy’s momentum has increased. We are off to a good start,” statistics office spokesman Li Xiaochao said.

The figures cap a good week for the Asian economy. Apart from the growth surge that prompted Singapore to let its currency appreciate, South Korea won an upgrade of its sovereign debt rating on Wednesday from Moody’s Investors Service.

Encouraged by the bullish news, non-Japan Asia stocks rose on Thursday to their highest level in almost two years.

However, regardless of the degree of policy tightening to come, the first quarter could well prove to be the high watermark for growth this year.

For a start, Li from the statistics office noted, the base of comparison will become increasingly demanding.

“The global economy is recovering slowly and it is not yet balanced. Commodity prices are high and there are sovereign debt worries in some countries. So there are many uncertainties,” he added.

(Additional reporting by Aileen Wang, Michael Wei, Langi Chiang and Melanie Lee; Writing by Alan Wheatley; Editing by Kim Coghill and Neil Fullick)

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