By Kim Yoo-chul
Staff reporter
"Variables" are the top consideration in cyclical businesses such as computer memory chips and flat-screens, as revenue and profit are determined by production capacity.
Increased factory construction can be seen as a good signal but investors should look at what's behind this. If oversupply hits the market, chipmakers may see their profits faller sooner than investors think.
Referring to "multiple variables," the world's biggest memory chipmaker Samsung Electronics said Tuesday it was still waiting to decide on additional investment increases.
One of the top considerations is the "sudden growth in smartphones," according to the top company executive.
"Samsung Electronics has yet to decide how rapidly we will boost our capital spending and when," Kwon Oh-hyun, the head of its semiconductor business told The Korea Times in southern Seoul.
"The market for smartphones is growing unexpectedly. Still, there are some conditions that should be taken into consideration before the final announcement," said Kwon who was attending a meeting chaired by Korea Semiconductor Industry Association (KSIA).
NAND flash memory chips are widely used in smartphones. The chips can restore data even after the device is switched off. An explosive growth for such mobile gadgets is making the sector's outlook rosy. However, it has also raised worries over another supply glut.
The executive said the top supplier both for NAND flash memory chips and conventional computer chips is finding out what the company says is "the intensity of demand" with its bigger overseas clients.
Samsung offers the components to Hewlett-Packard, Dell and Apple, while leading Taiwanese PC makers such as Acer and Asustek are also key buyers.
These remarks came a few days after Samsung's investor relations chief Robert Yi said it will "substantially increase" its investment for the semiconductor business amid healthy demand for consumer electronics products.
Asked about possible problems in the sector, Kwon said demand has remained strong so far this year, though he had worried over a "bubble" in demand for chips in the first quarter.
In an earlier interview with the newspaper, the top decision maker said he was being watchful and hesitant about increasing investment until demand uncertainties were resolved.
Kwon is positive about the industry for the remainder of this year. "Samsung sees tight supply and good demand continuing to the end of 2010."
"Our overseas competitors have had difficulties applying thinner chip-making technologies into production. That's one of the reasons why Samsung doesn't significantly worry over a rapid supply increases," Kwon said.
A Semiconductor Industry Association (SIA) report that showed chip sales for March up 58.3 percent from a year ago has helped chip stocks.
Samsung said it clinched a record operating profit for the first three months of this year, mainly helped by brisk performances of its chip and LCD businesses, and added the current quarter will be "even better" as consumers are buying more digital devices and mobile gadgets amid the economic recovery.