Samsung Electronics Co. (005930.SE, SSNHY), fresh off its best first quarter ever, says it plans to double capital spending on chips to about $9.56 billion this year, roughly double rival Intel Corp.'s (INTC) budget.

The big spending plan, to be financed by cash generated from operations, sends a strong signal to the market that Samsung, South Korea's biggest company by market capitalization, is serious about gaining market-share.

It further illustrates that technology companies are rebounding amid improving demand for electronic products such as cellphones, PCs and televisions. Samsung is the world's biggest supplier of memory chips, and flat-screen TVs and the world's second-largest cellphone maker by volume, after Nokia Corp. (NOK).

Tech companies typically boost capital spending when market conditions are good and pare back when demand is weak. Part of Samsung's spending will be used to build new production lines to make memory chips such as dynamic randomaccess memory, or DRAM, used in PCs, and NAND flash memory used in Apple Inc.'s (AAPL) iPods and digital cameras. The move will allow Samsung to continue to dominate these segments as the world's biggest supplier of memory chips this year. And it just may be enough to overtake Intel, currently the world's biggest maker of chips.

But Samsung needs to make sure that it isn't a victim of its own success. If its new plants are churning out more chips, and rivals follow suit to maintain their share of the market, another oversupply in the chip industry could be looming. That would hurt everyone's profitability. Samsung operates in cyclical industries and with unstable market conditions in Europe, it isn't clear yet whether current demand will be sustainable over the long run.

Yun-Hee Kim