A key iPhone supplier warns that smartphone demand will continue to decline

A key iPhone supplier warns that smartphone demand will continue to decline

A key iPhone supplier warns that smartphone demand will continue to decline

(Bloomberg) — Murata Manufacturing Co. expects this year’s decline in smartphone sales to continue into 2023, led by a sharp decline in China.

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The company’s outlook has dipped dramatically from last quarter, when it looked forward to a rebound 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 big spending, and Murata sees little prospect of growth in the coming year, President Norio Nakajima told Bloomberg News in an interview.

“Momentum will not return at least during fiscal 2022 and the situation is not so positive in the next term,” Nakajima said. “Demand for consumer electronics has dropped dramatically and these Chinese manufacturers are not feeling well.”

Kyoto-based Murata is a mainstay of the smartphone industry, providing electronic modules and components for Apple Inc.’s iPhones, Samsung Electronics Co.’s Android devices. and leading device manufacturers in China. Its shares have fallen more than 20% this year as key customers have endured double-digit declines in shipments, particularly in China.

“Consumers might be willing to buy new phones even with small upgrades if the economy was in better shape,” Nakajima said, pointing to rising interest rates by central banks around the world as a big factor. “I fear that what will happen is that smartphones will become further commoditized and people will wait even longer before upgrading.”

Read more: Global smartphone demand continues to decline as economic woes emerge

The global mobile phone market was 1.36 billion units last fiscal year, according to Murata’s estimates, but the figure for the current period is likely to be less than 1.2 billion, Nakajima said. The biggest negative risk is a further decline in sales abroad for Chinese companies.

“Chinese manufacturers have been pushing hard for sales outside their home, but due to various issues, including intellectual property infringement, consumers like those in India have started to shun Chinese phones,” he said.

One advantage that Murata’s president has seen is the continued demand for high-end phones even during the economic downturn. The weakened yen, which is now approaching 150 yen to the US dollar, is also helping to lift the company’s results as 65% of its production is done in Japan, but more than 90% of sales are made overseas.

Read more: Talk of covert intervention pervades market as yen nears 150

“The weak yen gives us a breather because our earnings will look good,” Nakajima said, without explaining how the company was still calculating the latest numbers. Earlier, Murata said its revenue would increase by 11 billion yen ($74 million) a year, with each yen weakening against the dollar. “But this is dangerous, because the impact of exchange rates masks the decline in factory operating rates that results from weakening demand.”

Rising energy costs due to the war between Russia and Ukraine will also affect profits in the long term as price increases are unfeasible for some competing products, including Murata’s main ceramic capacitor offering, Nakajima said.

Outside of the consumer realm, Murata is enjoying strong demand from clients rolling out 5G wireless base stations, following heavy investment in building network capacity across Asia. The auto industry, which is experiencing a boom in the development of electric vehicles, is another bright spot.

Read more: Sony Honda to build premium EV in North America from 2025

“Power management chips are currently the only bottleneck in car manufacturing, and that bottleneck is likely to disappear early next fiscal year,” Nakajima said.

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