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Falling Apple sales hit Japanese device makers

Japan Display Chairman and CEO Mitsuru Honma, right, speaks during an earnings briefing at the Tokyo Stock Exchange on May 12.

TOKYO -- Having previously enjoyed strong sales on the back of Apple's popularity, a number of Japanese device makers are starting feel the pinch of a recent fall in iPhone sales. Unless the decline stops, it could deal a huge blow to these manufacturers.

During an earnings briefing at the Tokyo Stock Exchange on Thursday, Mitsuru Honma, Chairman and CEO of Japan Display, said he had never expected earnings to deteriorate this much in the January-March quarter.

During the period, the company's group sales were down 24% on the year to 176.3 billion yen ($1.62 billion). It posted an operating loss of 7.2 billion yen, compared with a 10.7 billion yen surplus in the same period last year. The company's sales sank by 42% and operating profit fell by 20 billion yen from the October-December quarter of 2015. The company's earnings also deteriorated after the brisk sales of the iPhone 6 series gradually died down following its fall 2014 release.

In addition to a reported exchange loss of more than 10 billion yen, the company pressed ahead with structural reforms such as disposing of dead stock and overhauling plants with aging production lines in the January-March quarter. The measures are expected to push up profits by 42 billion yen in three years, Honma said.

Rival company Sharp is also reeling from the drop in Apple's sales. The company's display segment saw its sales tumble 26% on the year to 154.1 billion yen, and posted an operating loss of 91.9 billion yen in the January-March quarter of 2016, compared with 2.1 billion yen from a year earlier.

Big blow

Earnings at Sony's device segment have remained weak due to the overall slowdown in smartphone sales. In the January-March quarter of 2016, sales declined 16% from a year earlier to 189.9 billion yen. It's operating loss increased to 79.9 billion yen, from a 4.6 billion yen loss a year ago. Executive deputy president Kenichiro Yoshida said his company significantly miscalculated demand for image sensors.

Toshiba, which supplies flash memory chips to Apple, also saw its semiconductor & storage segment post an operating loss of 124.8 billion yen in the quarter.

The slowdown is also taking its toll on components makers. Operating profit at Murata Manufacturing plunged 25% in the January-March quarter of 2016. "Our earnings fell short of expectations in the second half of the fiscal year through March 2016," said President Tsuneo Murata. "It will be difficult for us to expect the same growth for smartphone components."

TDK saw its operating profit fall 10%, while Alps Electric's dropped 40% on the year during the same period.

Apple expects a 13-17% revenue decline in the April-June quarter. Samsung Electronics, the world's largest smartphone manufacturer, also expects global shipments to decline in 2016. The two brands, which have dominated the smartphone market since the beginning, appear to have reached a plateau.

Chinese smartphone makers, including Xiaomi, are enjoying sustained growth.

Key to growth

In 2016, global smartphone shipments are forecast to grow 7-8% on the year to about 1.5 billion units, led by Chinese manufacturers. Huawei Technologies is expected to ship more than 130 million devices, up 20-30% from the previous year. The combined shipments of the top 10 Chinese smartphone makers, including Xiaomi, ZTE and Lenovo Group, are projected to increase 15% on the year to around 550 million units.

For many Japanese component companies, the key to future growth will likely rest on building solid relationships with Chinese smartphone manufacturers. Shipments are expected to grow as Chinese manufacturers look to meet growing demand both at home and in emerging markets in Southeast Asia and the subcontinent with low-end models priced under $200.

At the end of 2015, Japan Display opened its design development base in Shenzhen, China. Sharp plans to expand display sales utilizing its parent Hon Hai Precision Industry's customer base in China.

However, Chinese panel makers, such as Tianma Microelectronics and BOE Technology Group, have no intention of being left behind and have been improving their technological capabilities.

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