Mediatek, the biggest provider of chips used in cheap mobiles sold in China, said first-quarter sales were expected to be much higher than forecast due to robust demand, according to the Financial Times.
Mediatek's revision of its revenue forecast comes as PC makers are reporting a surprise recovery in demand from China after a dismal fourth quarter, suggesting that Beijing's efforts to stimulate domestic demand could be beginning to take effect, the newspaper added.
Mediatek, Taiwan's biggest chip design house, said it expected first-quarter sales to be between 8% and 13% higher than the last quarter. Its previous forecast had predicted a fall of between 8% and 16%.
Cheng Ming-kai, head of technology research for CLSA in Taipei, was quoted saying Mediatek's sales had probably been boosted by China's plan to encourage spending in lower-income, rural areas by subsidising purchases of select electronic products, including handsets.
Chinese state media have reported that Beijing has budgeted Rmb20bn ($3 billion) for such subsidies in the current year.
Most of Mediatek's customers are "white box" meaning the growing part of the Chinese market dominated by suppliers without brands and technology of their own. Mediatek supplies them with chips and a turnkey solution for making handsets. This practice was illegal in China until recently.
Handset sales are likely to receive another boost from China's two smaller mobile operators, China Unicom and China Netcom, to grab market share from China Mobile.