Samsung Electronics Co, due to report record earnings on Friday, may cut capital spending by as much as a fifth this year - a first reduction since the global financial crisis - as demand for computer chips weakens and rival Apple Inc looks set to buy fewer of its microprocessors used in the iPhone and iPad.
The South Korean firm, one of the technology industry's most aggressive spenders, has already seen Apple scale back buying Samsung flat screens and memory chips. Analysts predict the world's biggest maker of TVs, smartphones and DRAM memory chips could trim annual capex by 4-20 percent after investing a record 25 trillion won ($23.5 billion) last year.
By comparison, Taiwan's TSMC raised its capital spending to $9 billion this year, aimed in part at winning Apple orders away from Samsung.
"There are two key factors to watch in Samsung's earnings - capex plans and any guidance on smartphone sales, for this quarter or for all of 2013," said Jin Sunghye, an analyst at KTB Securities. "With a bleak PC sales outlook and growing prospects that Apple won't increase its chip purchases, Samsung is very likely to take a disciplined capacity expansion approach."
Samsung, valued at $220 billion, has said October-December operating profit will likely be a record 8.8 trillion won ($8.3 billion), up 89 percent from a year ago.
Quarterly revenue is expected to have risen around 19 percent to 56.2 trillion won ($52.7 billion) - around $565 million a day - and just behind Apple's $54.5 billion.
Samsung declined to comment on its capex plan.
Samsung's run of five record quarters may see a blip in January-March on weaker seasonal demand before picking up again later in the year, boosted by the expected launch of the new Galaxy S4- which is generating the kind of anticipatory buzz normally reserved for Apple products.
Analysts bet Samsung will get through any seasonal weakness better than rivals as it offers a broader range of smartphones - from the very cheap to the very expensive - and is seeing strong sales of its Note phone-cum-tablet, or 'phablet'.
"Samsung is likely to show a less severe seasonal earnings swing than its peers as it's got the Galaxy Note II, which is in the early stage of its life cycle and selling well. It will make up for any slowdown in the (Galaxy) SIII," said Park Young, an analyst at Woori Investment & Securities.
Apple shipped 47.8 million iPhones in the December quarter, a record that nonetheless disappointed many analysts accustomed to years of outperformance. Samsung is estimated to have sold around 63 million smartphones in the quarter, including 15 million Galaxy S IIIs and 7 million Note IIs, propelling its mobile business profit to around 6 trillion won, or 70 percent of total profit.
"When the new Galaxy will be launched is a key earnings swing factor," said Greg Noh, an analyst at HMC Investment Securities, noting that a late-March launch would boost Samsung's smartphone shipments by 3 million in the current quarter, bumping up earnings that are currently seen dipping by 4.6 percent to 8.4 trillion won, according to Thomson Reuters SmartEstimates.
Cupertino, California-based Apple missed Wall Street's revenue forecast for a third straight quarter on Wednesday as iPhone sales lagged expectations, driving Apple shares down more than 10 percent early on Thursday.
Apple shares have dropped by around a third since mid-September as investors fret that its days of hyper growth are over and its devices are no longer as 'must-have' as they were.
Over the same period shares in Samsung have risen 12 percent as a company once seen as quick to copy others' ideas now sets the pace in innovation. At the world's biggest electronics show in Las Vegas this month, Samsung unveiled a prototype phone with a flexible display that can be folded almost like paper, and a microchip with 8 processing cores, creating a buzz that these may be used in the next Galaxy range.
"It's very probable to us that the Exynos 5 Octa (processor) will find its way into the Galaxy S4," UBS analyst Nicolas Gaudois wrote in a recent note. "It also looked as if the curved display is close enough to finished product. We came away even more convinced that displays will provide significant differentiation to Samsung devices, and application processors will materially grow over time."
Samsung's component business is also benefitting from a rebound in memory chip prices after major suppliers such as Toshiba Corp cut production last year.
The commodity chip supply balance has also improved sharply, after chipmakers cut output of PC memory chips and increased production of the more profitable mobile chips to ride the boom in smartphones and tablets.
Global PC shipments are set to rise 8 percent this year, after declining for the first time in more than a decade, and this could drive DRAM chip revenue up by 14 percent to $30 billion, according to research firm IHS iSuppli.
Samsung's flat screen business, which last year lost 220 billion won, is also recovering on the back of demand for high-end screens for Galaxy smartphones and as demand for TV screens increased during the year-end holiday season.
($1 = 1066.2000 Korean won)
(Reporting by Miyoung Kim; Editing by Ian Geoghegan)