(Bloomberg) — Murata Manufacturing Co. expects this year’s drop in smartphone sales to keep going well into 2023, led by a sharp downturn in China.
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The company’s outlook has dimmed dramatically from a quarter ago, when it looked forward to a bounceback in Chinese demand after the end of Covid-19 lockdowns in major cities. Consumers in the world’s biggest smartphone market haven’t responded with a spending spree and Murata sees little prospect for a rally over the next year, President Norio Nakajima told Bloomberg News in an interview.
“The momentum will not come back at least during fiscal 2022 and the situation is not that positive going into the next term,” Nakajima said. “Demand for consumer electronics has dropped drastically and these Chinese makers are not feeling well.”
Kyoto-based Murata is a linchpin of the smartphone industry, providing electronic modules and components for Apple Inc.’s iPhones, Samsung Electronics Co.’s Android devices and China’s leading device makers. Its shares have slumped more than 20% this year as key customers have weathered double-digit declines in shipments, especially in China.
“Consumers might have been willing to buy new phones even with small upgrades if the economy were in a better shape,” Nakajima said, pointing to interest rate hikes by central banks around the world as a big factor. “What I’m afraid will happen is smartphones get further commoditized and people will wait even longer before upgrading.”
Read more: Global Smartphone Demand Continues Fall as Economic Woes Hit
The global handset market was 1.36 billion units last fiscal year, according to Murata estimates, but the figure for the current term is likely to fall short of 1.2 billion, Nakajima said. The biggest downside risk is a further slump in overseas sales for Chinese firms.
“Chinese makers pushed hard to sell outside their home turf, but due to various issues including intellectual property infringements, consumers like those in India began to avoid Chinese phones,” he said.
One silver lining seen by Murata’s president is sustained demand for high-end phones even during the economic downturn. The weakened yen, which now approaches 150 yen to a US dollar, is also helping prop up the company’s bottom line as 65% of its production is done in Japan but more than 90% of sales are made overseas.
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“The weak yen gives us a breather as it will make our earnings look good,” Nakajima said, without elaborating as the company is still calculating the latest figures. Previously, Murata guided its revenue would increase by 11 billion yen ($74 million) per year with every one yen weakening against the greenback. “But this is dangerous, because the impact from foreign exchange rates masks falling factory operating rates stemming from weakening demand.”
Rising energy costs due to the Russia-Ukraine war will also weigh on profits over the long term because increasing prices is unfeasible for some competitive products, including Murata’s main offering of ceramic capacitors, Nakajima said.
Outside the consumer realm, Murata is enjoying robust demand from clients erecting 5G wireless base stations, following big investments in building out network capacity across Asia. The auto industry, riding a boom in electric vehicle development, is another bright spot.
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“Power-management chips are the only bottleneck in car production right now, and that jam is likely to go away sometime early next fiscal year,” Nakajima said.
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