TOKYO -- A new-product presentation by Apple usually rivets investors, particularly those who follow electronic parts suppliers. But this year, as the iPhone maker prepares for its anticipated briefing Tuesday, another event that opens to the press the same day is also stirring excitement: the International Motor Show in Frankfurt, Germany.
"I'm not interested in talk about information communication anymore. I want to hear about what's happening in the auto industry," a fund manager at a Japanese asset management company told an electronics sector analyst recently. The fund manager said he no longer believed that smartphones would drive growth for electronic components makers.
The reason: The smartphone market is increasingly saturated. "The number of mobile phones, including smartphones, should not be used to predict demand for electronics parts," said Akihiko Uchino at Mitsubishi UFJ Morgan Stanley Securities. Global mobile phone subscriptions have been stagnant at around 6.5 billion lines for the past three years, according to Mitsubishi UFJ. Annual sales of mobile devices come to around 1.9 billion units, with replacement of devices accounting for 90% of demand.
The engine behind the next growth wave will be technologies for autonomous driving, connected cars and electric vehicles. The volume of automotive electronic components will increase 10-20% yearly, Uchino predicted. The Frankfurt show will unveil cutting-edge models and technologies, providing a key opportunity for projecting the future of electronic parts.
The global market for advanced driver-assistance systems, including automated brakes, and autonomous driving systems will roughly quadruple from 2016 to 2025 to reach 3.31 trillion yen ($30.7 billion), projects the Fuji Chimera Research Institute. The market for connected cars has a similarly rosy outlook. This all but promises exponential growth for automotive electronic components.
These numbers "indicate a shift in the long-term cycle of demand" for electronic parts, said senior analyst Fumihide Goto at Mizuho Securities.
In a Mizuho survey in July, 42% of investors said they are most bullish about electronic parts as a subsector this fiscal year, far exceeding the 20% for chipmaking gear and 14% for measurement control devices. Given that all three subsectors had support of about 25% in the same survey for April, hopes are rising fast for electronic components.
Component suppliers focusing on automotive electronics are currently flying high in the stock market. Shares of Iriso Electronics, which makes 85% of its revenue from the auto industry, have surged 66% since the start of the year, while CMK, with an automotive sales portion of 71%, has jumped 47%. In contrast, Murata Manufacturing, which gets only 15% of its revenue from automotive customers, is up a milder 3%.
Competition will inevitably intensify with Chinese and Taiwanese peers. The key to success is "having a big market share and top-notch technology," said Uchino at Mitsubishi UFJ. But in dealing with the auto industry, electronics component makers must do better at negotiating prices. The day may soon come when companies that used to perform well as Apple suppliers start shining as auto parts suppliers.