TOKYO -- Six major Japanese electronic parts makers are enjoying strong growth in orders on the back of robust demand for their components used in Apple's new iPhone 6s models.
Despite China's economic slowdown and other uncertainties in the market environment, these companies expect steady growth in demand going forward amid advances in smartphone technology and automobile computerization. They plan to make large capital investments to capture demand further.
The value of orders at six Japanese electronic parts makers combined -- Murata Manufacturing, TDK, Kyocera, Nidec, Nitto Denko and Alps Electric -- rose 14% on the year to about 1.45 trillion yen ($11.9 billion) during the July-September period, the highest amount on record on a quarterly basis, according to the data compiled by The Nikkei. The data includes sales of components, not the value of orders, by some of these makers.
This means the value of orders combined registered double-digit growth for five quarters in a row, surpassing the previous high of 1.3778 trillion yen recorded in the October-December period last year.
Ramping up production
Strong growth came as they started producing in the July-September quarter components for iPhone 6s models, which were released in September. Apple has said that sales of its latest iPhones have been stronger than the previous models launched in September last year. As such, the growth rate of orders has been more or less the same compared with the same period last year.
Moreover, smartphone makers offer more sophisticated features, which have in turn involved new parts as well as a greater number of necessary parts. All this has helped boost the value of orders at these six companies.
A number of Murata Manufacturing's parts are reportedly used in the new iPhones. As such, Murata's value of orders rose more than 25% on the year to about 350 billion yen during the three months through September, according to the data. Meanwhile, TDK's value of orders jumped roughly 15% to about 335 billion yen compared with the previous year, the data shows.
Alps Electric is also seen posting a nearly 20% increase in value of orders. Meanwhile, Nidec's vibration devices are believed to be used in iPhone 6s' Taptic Engine, a key function that gives the user a more precise level of Taptic feedback. Nidec, a Kyoto-based motor maker, saw a roughly 20% increase on the year to nearly 300 billion yen in sales, according to the data.
Increased capital spending
These six companies have also seen a steady growth in orders for their automotive parts, and thus will continue to make large capital investments. Nidec, for instance, intends to spend around 90 billion yen on business investments, an increase of about 18 billion yen from the earlier estimate at the start of this fiscal year, and up 50% from the amount of capital spending in fiscal 2014 thorough this past March.
Similarly, Murata has decided to spend roughly 12 billion yen to build a new production facility for making communications-related components at its factory in Ishikawa Prefecture. Alps Electric plans to invest 10 billion yen to increase output of various parts, such as autofocus actuators for smartphone cameras, starting in October.
Despite growing concern over China's slowing economy, these companies don't expect a sharp drop in their orders down the road. "As smartphones continue to have more sophisticated features, we keep our prospects for demand growth," said Murata Manufacturing President Tsuneo Murata.
In general, orders for electronic parts hit their peak in the October to December period. Given such a trend, robust sales of iPhone 6s models will likely help push up orders for these companies' products. If so, the value of orders may hit a new record again in the coming quarter.
Greater features = greater demand
Strong growth in orders is largely attributed to these Japanese makers' technological strengths, an important factor behind smartphones' sophistication. The overall slowing trend in the smartphone market will most likely curb the pace of growth in shipment volume. Still, observers expect the number of necessary parts will continue to increase per unit, which will likely help fuel demand for Japanese electronic components.
"Parts sales from a single lower-priced smartphone will likely double," said Yoshitaka Fujita, Murata Manufacturing's executive deputy president. Currently, the company earns about 100 yen to 150 yen from parts sales per lower-priced smartphone. But this is expected to rise to somewhere between 200 yen and 300 yen, a price range in which the company earns per unit from sales of parts used in mid-range models. This is because advances in smartphone technology, such as high-speed communications, will likely raise the number of necessary parts significantly.
For instance, smartphones compatible with five different communication standards, including the long-term evolution, referred to as LTE, require more than double the number of communications-related parts compared with those models that can comply with three standards.
According to the U.S. market research company International Data Corporation, the growth of global smartphone shipments will likely slow to 10.4% in 2015, a sharp drop from the 27.5% increase in 2014. Meanwhile, the LTE standards have been available in about only 30% of the global communications market, which means there is still much room for growth.
What's more, the sophistication of smartphone functions is creating a new component market, which analysts believe will help encourage technological advances in other areas, such as high-speed communications, wireless charging and sensors. This, too, could be a boon for these Japanese electronic parts makers.