A strong semiconductor business also pushed up Fujitsu's (6702.T) April-June profits, prompting it to hike its first-half operating profit guidance by 40 percent. The world's No. 3 IT services vendor, however, kept its annual outlook unchanged on European woes.

Toshiba (6502T), its bigger rival Samsung Electronics (005930.KS), and other NAND-type flash memory makers are benefiting from soaring demand for chips used in mobile phones and digital cameras.

They are also gaining from tight supply and stable prices since last year's severe sector downturn forced many chipmakers to slash output or go under and NAND-clad gadgets like Apple Inc's (AAPL.O) iPhone and iPad surge in popularity.

But some analysts warn the sector, whose history is marked by volatile cycles of shortages and oversupplies, is heading to another supply glut as companies ramp up investments.

Toshiba recently started constructing its latest chip plant.

"You have to watch and see if demand holds up," said Hiroaki Osakabe, strategist at Chibagin Asset Management in Tokyo.

"There's going to be a lot of investment by makers and there's the chance of oversupply. But the overall sector isn't in that bad of a shape right now."

Elpida Memory (6665.T), a maker of dynamic random access memory (DRAM) chips, was buoyed by strong PC shipments, while strong demand for analog chips and microcontrollers used for vehicles and electronics helped Renesas Electronics (6723.T).

Renesas, the world's fifth-largest chipmaker created in April through a merger of Renesas Technology and NEC Electronics, still made a quarterly loss on merger costs and other expenses.

Toshiba, the world's No. 3 chipmaker overall, posted its highest ever first quarter operating profit of 29.5 billion yen ($337.2 million), beating an average forecast of 24.2 billion yen from three analysts polled by Thomson Reuters I/B/E/S.

To boost growth, it has been focusing on emerging areas such as smart grids and lithium-ion batteries besides its traditional chip and nuclear power businesses.

Toshiba retained its full-year outlook for a doubling of operating profit to 250 billion yen, near consensus of 256 billion yen, citing weak economies in the United States and Europe.

"Leading indicators suggest economies in the United States and Europe may slow down in the second half, and with the current situation in the Europe, the outlook is unclear," Toshiba senior executive vice president Fumio Muraoka said in a briefing.

"But the outlook is unclear in any age, and we just have to make right decisions and do what we can do to improve earnings. We can't blame the business environment."

The economic uncertainty is also weighing on Korean chipmakers Samsung and Hynix Semiconductor (000660.KS). [ID:nLDE6660GU][ID:nTOE66J05B]

Research firm iSuppli said this month an oversupply of chips used for removable memory cards and USB drives helped global revenue from NAND shipments fall 6.5 percent in April-June, but said the sector was set to return to growth in the next five quarters.

"The prices of NAND flash memory have really recovered from their lows, and now for a while they're likely to drift sideways," said Chibagin Asset's Osakabe.

"Toshiba is a bit weak in terms of household electronics but as long as demand for NAND flash memory remains good and prices are stable, Toshiba won't do that badly."

Renesas expects a 7 billion yen operating profit for the year to March, bigger than a consensus of 4.3 billion yen from a poll of eight analysts. This is the first time the company issued a profit outlook.

Aiming to slash costs by 110 billion yen in next three years, Renesas announced it would axe around 8 percent of group workforce and outsource some production to Taiwan Semiconductor Manufacturing Co (2330.TW) and U.S.-based Global Foundries Inc.

Elpida, which trails Samsung and Hynix in the DRAM market, did not provide full-year outlook, but analysts on average see a 124 billion yen profit, marking a jump of almost five times from a year ago.

Elpida reported April-June operating profit of 44.4 billion yen, versus a consensus for 40.2 billion yen.

Fujitsu's quarterly earnings returned to an operating profit of 10 billion yen, beating market expectations. Its IT segment improved in profits on lower costs, but the company said demand for IT services had not fully recovered.

Fujitsu, which compete with IBM (IBM.N) and Hewlett-Packard (HPQ.N), kept its operating profit forecast at 185 billion yen for the year to March, saying the European outlook is unclear and a spending sqeeze by the British government is also hurting.

By: DocMemory
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