A major iPhone supplier warns that demand for smartphones will continue to decline

(Bloomberg)–Manufacturing company Murata expects smartphone sales to continue declining this year well into 2023, led by the sharp decline in China.

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The company’s expectations have dwindled significantly from the previous quarter, when it was eyeing a rebound in Chinese demand after the end of the Covid-19 lockdowns in major cities. Consumers in the world’s largest smartphone market haven’t responded to a spending spree, and Murata sees little prospect of a price hike over the next year, Norio Nakajima, president, said in an interview with Bloomberg News.

“The momentum will not return at least during the 2022 fiscal year and the situation is not positive in the coming period,” Nakajima said. “Demand for consumer electronics has fallen dramatically and these Chinese makers are not feeling well.”

Kyoto-based Murata is a major hub in the smartphone industry, providing electronic units and components for Apple Inc’s iPhones. and Android devices of Samsung Electronics, the leading device makers in China. Its shares have fallen more than 20% this year as major customers have weathered a double-digit drop in shipments, particularly in China.

“Consumers might have been willing to buy new phones even with small upgrades if the economy was in better shape,” Nakajima said, citing higher interest rates by central banks around the world as a big factor. “What I’m afraid of is that smartphones will become more of a commodity and people will wait longer before upgrading.”

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The global phone market reached 1.36 billion units last fiscal year, according to Murata’s estimate, Nakajima said, but the number in the current term is likely not to reach 1.2 billion. The biggest downside risk is a further decline in overseas sales of Chinese companies.

“Chinese manufacturers have been pushing hard to sell outside of their home land, but due to various issues including IPR violations, consumers like those in India have started to shun Chinese phones,” he said.

One silver lining that Morata’s boss has seen is the continued demand for high-end phones even during the economic downturn. The weak yen, now approaching 150 yen to the US dollar, also helps support the company’s bottom line as 65% of its production is made in Japan but more than 90% of sales are made overseas.

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“The weak yen is giving us a breather because it will make our profits look good,” Nakajima said. Previously, Murata directed its revenue would increase by 11 billion yen ($74 million) annually with each yen weakening against the dollar. But this is dangerous, because the effect of foreign exchange rates masks the lower factory operating rates caused by weak demand.

Nakajima said higher energy costs due to the Russo-Ukrainian war will also affect profits in the long run because price increases are not feasible for some competitive products, including Murata’s flagship offering of ceramic capacitors.

Outside the consumer world, Murata has strong demand from customers who are setting up 5G wireless base stations, after significant investments in building network capacity across Asia. The auto industry, which is experiencing a boom in the development of electric vehicles, is another bright spot.

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“Power management chips are the only hurdle in auto production at the moment, and that congestion is likely to go away sometime early next fiscal year,” Nakajima said.

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