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Chipmaking device builders get surprise emerging-market lift

TOKYO -- Even as sales of Apple's iPhone slow, Japanese manufacturers of semiconductor equipment are enjoying an unexpected tailwind from the spread of affordable yet heavily loaded smartphones in emerging economies.

Seven major suppliers -- Tokyo Electron, Hitachi High-Technologies, Advantest, Screen Holdings, Disco, Tokyo Seimitsu and Hitachi Kokusai Electric -- have upgraded their net profit forecasts for the year ending in March.

Tokyo Electron, seeing brisk sales of etch systems used to trace circuit patterns on wafers, raised its forecast by 15 billion yen ($140 million) to 100 billion yen. That would make a 28% jump on the year to near the record 106.2 billion yen reached in fiscal 2007.

Tokyo Seimitsu upped its guidance by 1 billion yen to 9.4 billion yen, a 3% decline on the year. While a stronger Japanese currency is undercutting profit, sales of mainstay wafer probing machines are increasing more than expected. Hitachi High-Tech, Disco and Hitachi Kokusai also are forecasting net profit declines, mostly because of yen appreciation.

Six of the companies are expected to achieve sales volume growth. The exception, Hitachi Kokusai, faces a drop-off from a major project a year earlier.

These equipment suppliers had braced for a slowdown in semiconductor industry capital investment as the popularity of high-end handsets by Apple and others ebbs.

But Chinese handset makers have stepped forward with affordable yet high-performance models that use many chips. This has popularized smartphones in emerging markets, prompting the construction of more data centers to handle a surge in data transmission volumes. These facilities require chips, too -- another tailwind for semiconductor equipment suppliers.

Order values at the seven companies in the April-September half reached the highest in nine and a half years. A slight drop is expected in the October-December quarter, followed by a rebound in January-March. Orders are normally logged as sales in three to six months, so profits are likely to remain strong next fiscal year.

High-capacity 3-D memory chips likely will be an important factor then. These chips are beginning to be used in data center servers. South Korea's Samsung Electronics will open a major plant for 3-D memory next year, and Japan's Toshiba and Intel from the U.S. are also making capacity-boosting investments.

Supplies may be tight now but with demand expected to ease next year, chipmaking device orders could slow. Applied Materials from the U.S. and others are all vying for a piece of this action. "Next year will be a critical juncture," said Fumiyuki Kanai, senior vice president of Hitachi Kokusai.

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