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Parts maker Murata expects 23% profit jump on car demand

Smartphones also help but accounting tweak matters more

Murata has been trying to lower its dependence on smartphone demand. Automotive capacitors are expected to underpin profit growth this fiscal year.   © Reuters

OSAKA -- Murata Manufacturing foresees a 23% jump in net profit for this fiscal year, buoyed by brisk sales of ceramic capacitors for automobiles as well as by a change in how the company accounts for depreciation expenses. 

The Japanese electronic parts manufacturer is working to overcome its susceptibility to swings in the smartphone industry. But this remains a major challenge, given that profit growth would be driven in large part by the one-time accounting factor.

Murata on Friday pegged its projected net profit for the year ending March 2019 at 180 billion yen ($1.65 billion), the highest figure in three years.

As automobiles are increasingly fitted with advanced electrical systems, "demand for electronic components is expanding dramatically," Chairman and President Tsuneo Murata told a news conference.

The company sees sales rising 15% to 1.57 trillion yen and operating profit jumping 48% to 240 billion yen.

Demand for smartphones is tied to the fortunes of many manufactures worldwide, often in an adverse manner. While acknowledging that handset growth will slow down in volume terms, the Murata president argued that as smartphones are repeatedly upgraded, they are using more electronic parts, lifting demand for high-value-added components. Murata's sales of parts for communications devices, including smartphones, are forecast to grow about 13%.

Murata expects a reduction of 67.5 billion yen in depreciation charges this fiscal year thanks to its switch from the declining-balance to straight-line method. If this one-time factor is excluded, the company's operating profit would rise just 6% to 172.5 billion yen -- falling short of the consensus view of 217.1 billion yen. Heavy investments for bolstering capacitor output are keeping Murata from regaining the vigor it boasted back in fiscal 2015, when it earned a record operating profit of 275.4 billion yen. 

Hoping to lower its dependence on smartphone demand, Murata has been trying to diversify operations, focusing on the auto and energy segments. It acquired Sony's battery business last year, but updating facilities and product development are costing more than anticipated. Murata had expected to turn the business profitable in fiscal 2019, but now "we have no choice but to move back the timeline," the president said.

Murata's shares are down 8% for the year. The stock was susceptible to the unwelcome news of sluggish demand for Apple's top-of-the-line iPhone, said a portfolio manager at a Japanese asset management company. 

For the year that ended March 31, Murata's sales climbed 21% to 1.37 trillion yen while net profit slid 6% to 146 billion yen. 

Murata's peers in Japan also expect net profit growth this fiscal year. Nidec, Kyocera, Nitto Denko, TDK and Rohm all see a double-digit gain as higher sales of automobile components offset slowing demand from the smartphone industry. The only exception is Alps Electric, which is bracing for a 21% drop in profit due to falling sales of parts for smartphones and other consumer products.

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