Murata Manufacturing anticipates the decline in smartphone sales that began this year to continue well into 2023, driven mostly by a severe decline in China.

The company’s prognosis is far worse than it was a quarter ago, when it anticipated a rebound in Chinese demand following the lifting of COVID-19 lockdowns in major cities. According to president Norio Nakajima, consumers in the largest smartphone market in the world haven’t gone on a spending binge and Murata sees little chance of a recovery over the coming year.

“The momentum will not return,” Nakajima said, “at least not during fiscal 2022, and the scenario is not that favorable heading into the next term.” Consumer electronics demand has fallen significantly, and these Chinese manufacturers are not feeling good.

With electronic modules and components for Apple’s iPhones, Samsung Electronics’ Android handsets, and China’s top device manufacturers, Kyoto-based Murata is a key player in the smartphone market. Its shares have fallen more than 20% this year as major clients have dealt with double-digit shipments decreases, particularly in China.

‘If the economy were in a better state, consumers could have been willing to buy new phones even with minimal enhancements,’ Nakajima said, pointing to interest rate increases by central banks throughout the world as a major reason. I worry that as cellphones become more commonplace, consumers may put off replacing their devices.

According to Murata’s projections, the worldwide phone market had 1.36 billion units in sales during the previous fiscal year, but Nakajima predicted that the number will likely fall short of 1.2 billion this time around. The biggest danger is a further decline in Chinese companies’ sales abroad.

Chinese manufacturers made a strong effort to market their products outside of China, but because of a number of problems, including intellectual property theft, buyers in countries like India started to steer clear of Chinese phones, the author claimed.

Source: Bloomberg

The president of Murata sees one bright spot in the continued demand for premium phones despite the current economic crisis. Since 65% of the company’s production is done in Japan but more than 90% of its sales are made outside of Japan, the weaker yen, which is now trading at around JPY150 to US$1, is also supporting the company’s bottom line.

The company is still compiling the most recent numbers, so Nakajima commented only, “The weak yen provides us a respite as it will make our earnings appear nice.” Previously, Murata projected that for every 1 yen weakening against the dollar, company income would rise by JPY11 billion (US$74 million) annually. However, this is risky since the effect of foreign exchange rates hides declining factory operating rates brought on by weaker demand.

Long-term profitability will also be affected by rising energy costs brought on by the conflict in Russia and Ukraine because some rival items, like Murata’s core product, ceramic capacitors, cannot be priced higher, according to Nakajima.

Outside the world of consumers, Murata is experiencing strong demand from clients installing 5G wireless base stations as a result of significant expenditures in expanding network capacity throughout Asia. Another encouraging area is the auto sector, which is benefiting from the growth in electric vehicle (EV) development.

The only thing holding back car manufacturing right now, according to Nakajima, are power-management chips, and that bottleneck will probably clear up early in the upcoming fiscal year.

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