LONDON/TOKYO - Technology companies are detecting signs of improvement in their industries, sending their share prices higher, but demand from consumers and corporations is uncertain.

Factories are cranking up production again as retailers restock bare shelves and electronics makers resume buying components after drawing down inventories.

Asian stocks have risen 45 percent since early March, excluding Japan, as investors anticipate renewed consumer interest in everything from flat-screen televisions to smartphones and portable netbook computers.

Given the economic weakness, however, there are no guarantees.

If the inventory channel is full and there is no final demand, I think the second half will be quite ugly for Asia, said Markus Rosgen, Citigroup's Asia-Pacific strategist, ahead of the Reuters Global Technology Summit next week.

Paul Otellini, chief executive of the world's biggest chipmaker, Intel (INTC.O: Quote, Profile, Research, Stock Buzz), said this week that orders and billing patterns this quarter so far had been slightly better than expected, cheering investors sector-wide.

And Leo Apotheker, co-chief executive of business software maker SAP (SAPG.DE: Quote, Profile, Research, Stock Buzz), said the next few months may bring glimmers of hope for the global economy. We're probably starting to see a stabilization, he said.

Hopes are high that government stimulus packages, particularly in China, will entice consumers to start spending again, leading to a real recovery in demand after inventory restocking is done over the next months.

The second half of the year is seasonally stronger than the first for the tech sector. The next test of consumer demand will come in August and September, the back-to-school season before the academic year starts in North America and Europe.

TELCO PROFIT CHALLENGES

For telecoms operators, the questions are more about profit than revenue. Large international carriers including Deutsche Telekom (DTEGn.DE: Quote, Profile, Research, Stock Buzz) have recently cut earnings forecasts, and France Telecom (FTE.PA: Quote, Profile, Research, Stock Buzz) reported a 7 percent drop in first-quarter core profit.

Cash flows seem assured at AT&T (T.N: Quote, Profile, Research, Stock Buzz) and Verizon (VZ.N: Quote, Profile, Research, Stock Buzz), as few customers show signs of cutting back significantly on wireless communications.

But as consumers keep their phones for longer, handset sales are expected to fall by about 10 percent this year, after a record 13 percent drop in the first quarter -- so demand has to be driven by enticing new services or value offers.

Some operators and phone makers have responded by opening so-called applications stores -- hoping to replicate the success of Apple's (AAPL.O: Quote, Profile, Research, Stock Buzz) AppStore, from which customers have downloaded more than a billion programs to their phones.

The commercial significance of such virtual stores has yet to be proven, however, and some analysts are skeptical -- especially as many of the widgets offered are free.

Phone companies in countries with well developed networks are also competing with each other to offer all-you-can-eat mobile service packages. These offers are popular with the public but may not be profitable for carriers.

The telecoms sector enjoyed popularity with investors during the early part of the recession, as strong cash flows and dividend yields provided a safe haven. But investors are switching into more cyclical stocks as hopes of recovery rise.

M&A PICKS UP

As sentiment around the broader technology sector becomes less conservative and the cash is king mantra loses its appeal, some investors are now keen for companies with cash piles to put them to use, for example through acquisitions.

Richard Parower, portfolio manager of the Seligman Global Technology Fund, is one such investor. He expects to see several small acquisitions over the next few months as the economy begins a slow crawl out of recession.

Companies are figuring out how to make M&A work, Parower said, noting that valuations are far more attractive now than they were 12 to 24 months ago.

Parower pointed to Oracle's (ORCL.O: Quote, Profile, Research, Stock Buzz) recent agreement to buy Sun Microsystems (JAVA.O: Quote, Profile, Research, Stock Buzz) for $7 billion, and Cisco's (CSCO.O: Quote, Profile, Research, Stock Buzz) entry into the server market, saying rivals will have to step up M&A activity to defend their turf.

Smaller deals -- some long in the making -- have materialized, such as British telecoms and retail group Carphone Warehouse's (CPW.L: Quote, Profile, Research, Stock Buzz) 236 million pound ($359 million) purchase of Web service provider Tiscali's (TIS.MI: Quote, Profile, Research, Stock Buzz) British assets.

Many would-be buyers have held back over the past months as they waited for valuations to reach a trough, as well as for financing to ease. Their moment may be approaching.

The Reuters Global Technology Summit takes place from May 18-21 in New York, Paris and Tokyo.

(Additional reporting by Anupreeta Das in New York, Gabriel Madway in San Francisco and Kevin Plumberg in Hong Kong; editing by Tiffany Wu and Derek Caney)

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