By Marie-France Han

"It looks like memory chip prices have reached a bottom, but whether they will improve consistently in the future is not clear yet," said M.S. Song, an analyst at HI Investment and Securities in Seoul.

The downturn in the memory chip sector, which started in early 2007 with an oversupply and collided with the global recession, is now widely seen as the sector's biggest test.

Over the past few months, cash-strapped manufacturers have cut output in the hope of stemming the steep price drops that have come with the oversupply, but the weakness in demand has prevented any meaningful price gains.

Even market leader Samsung Electronics <005930.KS>, which had until recently managed to eke out profits from its semiconductor business, will post a steep loss in what once was its bread-and-butter unit, analysts said.

"Samsung may look almighty, but it is not immune to the collapse in demand and price plunge," said Peter Yu, an analyst at BNP Paribas.

Some makers of dynamic random access memory (DRAM), used mainly in personal computers, have teamed up to cut costs, while some of the smaller players are likely to exit the business.

Prices of NAND flash chips, used mainly in digital music players and cameras, have improved slightly, but the small market size and the weak gains are not enough to rescue the memory sector as a whole.

South Korea's Samsung is expected to post a net loss of about 256 billion won ($186.1 million) in October-December, according to a Reuters survey of 11 analysts, its first-ever loss since it started to unveil quarterly figures in 2000.

For a table of results forecasts, see table below.

Samsung's semiconductor business is expected to post an operating loss margin in the high single digit percent, from a 5 percent profit margin a year ago and in sharp contrast with the 31 percent profit margin posted in the fourth quarter of 2006.

Samsung is widely expected to post even worse numbers in the current quarter, and analysts including BNP's Yu do not forecast a return to profit before the second half of the year.

In part responding to the unprecedented crisis, Samsung reorganized into two major groups, joining together its chip and display units and combining the telecom and media businesses.

The shakeup is seen as a signal Samsung plans to focus on profits while keeping a tight rein on costs and investments.

ELUSIVE DEMAND

"Chip inventories recently reached all-time highs, and many chip companies have had to cut production even more aggressively to prevent accumulation of excess inventories and prolonged oversupply," said Damian Thong, an analyst at Macquarie in Tokyo.

Analysts predict some market rebound in mid-2009, but do not expect any meaningful recovery unless demand truly returns.

"All this talk about industry consolidation doesn't matter right now," said Park Hyun, an analyst at Prudential Investment & Securities. "Demand is the only factor that matters."

(Additional reporting by Sachi Izumi in TOKYO and Baker Li in TAIPEI; Editing by Anshuman Daga)