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To break 'Apple jinx,' suppliers need to reduce dependency

Shares of LED backlight maker MinebeaMitsumi are especially vulnerable

An Apple iPhone X, center, is seen next to older models at an Apple store in New York on Nov. 3, 2017.   © Reuters

TOKYO -- Investors are carefully watching whether shares of Japanese electrical component maker MinebeaMitsumi will succumb to the "second-year jinx" that seems to plague Japan's Apple suppliers.

On Wednesday, the company upgraded its group net profit forecast for the current fiscal year ending in March by 5 billion yen to 62 billion yen ($567 million), up 51% from a year earlier. A QUICK survey of analysts yielded a more conservative average estimate of 60.7 billion yen.

The coming fiscal year "will continue to be good for LED backlights," said MinebeaMitsumi Executive Officer Satoshi Yoneda, anticipating steady demand from smartphone makers.

Yet MinebeaMitsumi's share price has been stagnant since the start of this year after more than doubling in 2017. The blame has been placed on uncertainty in the market for light-emitting diode backlights, which illuminate liquid crystal displays on smartphones. The company is believed to be shipping a large number of LED backlights to Apple.

Shares of Apple suppliers in Japan typically fare badly after a bumper initial year. For example, shares of Alps Electric rose 44% in 2015 but fell back 15% the following year. Those of Nitto Denko rose 53% in 2012, but only 5% in 2013.

MinebeaMitsumi's big stock surge in 2017 was not its first experience riding the wave of demand for LED backlights. In 2014, before merging with Mitsumi Electric, Minebea's share price rose 130% thanks to surging demand for Apple's iPhone 6. In the fiscal year starting in April 2014, Minebea's operating profit rose to a record for the first time in 17 years.

Things took a U-turn in the following year. The iPhone 6s, released that year, failed to attract the same demand, and appetite for smartphones cooled. Minebea's shares tanked by 42%.

Investors fear MinebeaMitsumi may be headed in the same direction in 2018 -- and not just because of the second-year jinx.

There is also the spread of smartphones equipped with organic light-emitting diode panels, which Apple adopted for its latest model, the iPhone X, released in 2017.

OLED panels do not need backlights because they are self-illuminating. Thus, the market for backlights will likely shrink over the medium term, squeezing MinebeaMitsumi's profits, said an official at a Japanese brokerage.

Many investors agree.

MinebeaMitsumi, however, has several mainstay business lines other than LED backlights. It also makes machinery parts, such as bearings, and game console parts, previously made by Mitsumi Electric. MinebeaMitsumi may need to rely more heavily on these, and less on Apple, to support its share price in 2018.

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