Eight parts suppliers – Murata Manufacturing, Nidec, Kyocera, TDK, Nitto Denko, Rohm Semiconductor, Alps Alpine and Taiyo Yuden – logged a combined 2% increase in revenue for the April-June period from January-March, their latest quarterly results show.
But their inventories expanded by 17% to ¥2.73 trillion (US$20.4 billion), according to those results. Inventory turnover increased to 3.1 months from 2.7 months, topping the figure from April-June 2020, when global demand plunged as Covid-19 spread. Murata in particular saw its turnover rise by two weeks to 3.7 months.
The increase resulted largely from the months-long coronavirus lockdown in Shanghai. Taiyo Yuden held ¥110.6 billion worth of inventory at the end of June, up ¥8.6 billion from the end of March after accounting for exchange rate fluctuations.
“We haven’t been able to ship products out because of the lockdown,” said Tomomitsu Fukuda, director and executive operating officer.
Alps Alpine’s revenue from automotive parts “essentially fell after accounting for exchange rates, due to a decrease in new-car sales from lockdowns and the global chip shortage,” said the company’s chief financial officer, Satoshi Kodaira.
Parts suppliers, still reeling from supply chain disruptions worldwide, now face plunging demand for finished products. Smartphone shipments fell 8.7% on the year in April-June and computer shipments by 15.3%, according to US-based market researcher International Data Corp.
“We now expect a 10% decrease in demand for smartphone parts compared to our outlook from the beginning of the fiscal year,” said Masanori Minamide, executive vice president at Murata.
Parts makers usually spend the July-September quarter fine-tuning their products ahead of the holiday shopping season. But a slowing economy has led to greater uncertainty. Insight into future demand likely will be gleaned from whether automakers can bring production back on track, as well as reaction to the new iPhone expected out in the fall.
Apple’s iPhones have performed well compared with other smartphones, with shipments falling just 5% on the year in April-June, according to Hong Kong’s Counterpoint Technology Market Research. But it is unclear whether new models will continue to attract such demand given their ever-rising prices.
Auto production has begun to recover despite continued supply-side constraints. But many automakers and their suppliers built up inventories amid Covid-19. They could decide to cut down their stockpiles before placing new orders.
Murata and Taiyo Yuden logged a year-on-year decrease in operating profit for April-June, while the other six saw slower growth. Exchange rate fluctuations were responsible for ¥12.6 billion out of TDK’s operating profit of ¥44.6 billion, and ¥8.7 billion out of Nidec’s ¥44.6 billion.
Parts producers “are maintaining high output while monitoring demand for the final products and their clients’ inventories,” said Shoji Sato at Morgan Stanley MUFG Securities. Murata scaled down production to 90% of capacity in July. Taiyo Yuden plans to reduce production of capacitors to around 85% of capacity in July-September from the 95% predicted in May.
Many parts suppliers have reconfigured their lineup to embrace the next big thing, from appliances to smartphones. With smartphones losing steam, they will need to tap new growing fields like electric vehicles and factory automation.
TDK will invest around ¥50 billion to build a plant in Japan’s Iwate Prefecture for multilayer ceramic capacitors (MLCC), used in electric vehicles. Taiyo Yuden is spending ¥5 billion to build an MLCC materials wing at a facility in Gunma Prefecture.