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Business trends

Smartphone slump weighs on Japan's electronic suppliers

Auto industry emerges as new engine driving orders

An Alps Electric plant in China. Orders held steady at the Japanese manufacturer as solid demand for automotive components made up for sluggish sales of smartphone parts.

TOKYO -- Japan's major electronic parts makers are seeing a slowdown in demand as smartphones prove a less reliable growth driver.

Orders at six leading manufacturers -- Murata Manufacturing, TDK, Kyocera, Nidec, Alps Electric and Nitto Denko -- rose 7% on the year to around 1.69 trillion yen ($15 billion) for the July-September period, an all-time quarterly record, data compiled by Nikkei shows. The figure also marked an eighth straight quarter of gains. Sales were used as a proxy for orders in some cases.

But the rise was smaller than the double-digit increases recorded throughout 2017. It was the first single-digit growth since the January-March quarter of this year, when sales of the new iPhone X got off to a rough start. 

Once a reliable source of demand, the smartphone market has matured, dealing a blow to parts suppliers. Inventory adjustments at phone manufacturers like Apple and Samsung Electronics are taking their toll.

Nitto Denko, a leading supplier of screen components, looks to have suffered a decline in orders of about 10%. A year earlier, the company enjoyed a surge in demand for parts used in smartphones with organic electroluminescent displays, but it has taken a hit from production adjustments.

Orders were roughly flat at Alps Electric, which boasts expertise in autofocus actuators for cameras. Sales of smartphone components were sluggish as handset shipments weakened, but this decline was offset by sales of parts for automotive use.

The company sees orders slipping around 5% for the October-December quarter, owing in large part to a tough comparison with a strong 2017.

Autos, including electric vehicles and those with self-driving technology, have become key drivers of orders. Supply appears particularly short for noise-suppressing capacitors, an essential component of automotive computer circuit boards.

New-car sales are slowing in China, and Japanese demand for hybrid vehicles has hit a lull. Still, a single vehicle uses up to 10,000 capacitors -- 10 times the number in a smartphone. "The number of capacitors in autos is on the rise," said Tsuneo Murata, president of Murata Manufacturing.

Orders appear to have grown 10% at Murata, which is spending up to 100 billion yen to boost capacity at facilities in Japan and the Philippines. The company, which commands a leading 40% share of the capacitor market, was confident enough to raise prices for all its products this fiscal year.

Kyocera posted a 14% gain on strong capacitor sales and the acquisition of an automotive sensor manufacturer. TDK recorded an increase of about 10%, fueled by capacitors as well as inductors, used for stabilizing electric currents.

The outlook for parts makers for the current quarter and beyond is murky apart from the automotive segment. Mitigating the slowdown in smartphones will be key. Analysts are closely following sales of the latest iPhone Xs and iPhone Xs Max, as well as demand for video game consoles in the coming holiday shopping season.

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