TOKYO -- Asia's electronic parts suppliers see a brighter future ahead, thanks to rising global demand for smartphones, including Apple's new premium iPhone.
Nitto Denko, a Japanese electronic parts maker and supplier to Apple, on Monday raised its earnings forecast for the six months ending September. The company said it now expects an operating income of 65 billion yen ($589.4 million), up 121.8% from the same period last year, "considering the expected increase in revenue from optical films for smartphones, double-sided tape materials and processing materials for electronic devices."
The higher forecast follows strong earnings for the three months ended June. Nitto Denko's operating profit climbed 158.4%, year on year, to 30.3 billion yen for the quarter, while its net profit jumped 199.2% to 20.3 billion yen.
Analysts at Goldman Sachs said in a recent report that they expect all new iPhone models released in 2018 to use organic light emitting diodes displays, and that Nitto Denko will benefit as a player in OLED materials and equipment.
Murata Manufacturing, another electronic parts maker and Apple supplier, is also looking on the bright side as it shakes off disappointing earnings for the April-June period. The company on Monday reported a 15.9% year on year drop in operating profit for the quarter to 40.9 billion yen, and 12% fall in net profit to 33.1 billion yen.
But that was mainly due "higher-than-expected costs to start production of high-value-added products that are difficult to manufacture," such as the ultrahigh-end MLCC multilayered ceramic capacitors used in smartphones, said analysts at Morgan Stanley MUFG Securities.
Murata Manufacturing said it had strong orders "in the run-up to the launch of new smartphone models," and that the company's backlog reached a record 184.4 billion yen. The company will go into full production in the July-September quarter to meet demand from key customers like Apple, it said.
"Our business conditions will likely improve in the July-September period and beyond," said Vice Chairman Yoshitaka Fujita at a news conference on Monday.
Another iPhone supplier, Alps Electric of Japan, which released its first quarter earnings last week, reported a 56.5% increase in operating profit to 7.9 billion yen, and a 139.8% jump in net profit to 6.3 billion yen. It also upgraded its earnings forecast for this fiscal year, predicting its net profit will reach a record 41 billion yen, "due to the solid performance of products for the automotive and smartphone markets."
Demand for smartphones is still rising globally, especially in fast-growing Asian economies. According to GfK, a marketing specialist, emerging Asia, which includes such countries as India and Indonesia, saw an 11% increase in sales of smartphone handsets in second quarter of 2017, compared with a year earlier.
Global smartphone shipments are also expected to rise by an average of 3.8% a year from 2016 through 2021. That is giving a lift to suppliers outside Japan.
Taiwan's Largan Precision, an iPhone lens maker, booked revenue of NT$11.31 billion ($374.5 million) in the second quarter of 2017, up 13% on the year. Its net income came in at NT$4.71 billion, up 27.6%. The company will begin to ship lenses for 3-D sensing modules in the second half of this year that are expected to go on new iPhones.
Meanwhile South Korea's SK Hynix's operating profit of 3.05 trillion won for April-June was 6.7 times higher than for the same quarter in 2016. SK Hynix is a major provider of DRAM chips for the iPhone's, along with Samsung, also of South Korea.
A headache for the smartphone component makers is that sometimes the new handsets fail to catch on with consumers. They are susceptible to volatility in major markets. Shipments to China, the world's largest buyer, fell on the year for the six months through June, raising concerns among suppliers. Apple's decision in the first half of 2016 to cut production also led to the first decline in orders in four years for six major Japanese suppliers.
Nitto Denko shares soared in Tuesday morning trade, rising 3.62% to 10,215 yen. Murata's shares were down 1.01% at 17,005 yen.