Japan's Apple suppliers cannot bank on iPhone 'supercycle' yet
Strong yen among factors weighing on parts makers' shares
TOKYO -- Although the buzz around the 10th anniversary iPhone has sent Apple's stock to a record high, such enthusiasm has not translated into comparable gains for many Japanese parts suppliers, which increasingly rely on business from the American giant's Chinese rivals.
The new iPhone model to be unveiled Tuesday will feature an organic light-emitting diode display and other high-tech upgrades. Apple's stock has retreated somewhat from its high earlier this month but was still trading above $160 ahead of the announcement.
In the Tokyo market, shares in capacitor maker Murata Manufacturing, battery supplier TDK and Alps Electric, which makes image stabilizers, also gained Tuesday and have traditionally been lifted by the iPhone's rising tide. Yet they have remained below highs reached during the summer of 2015.
One reason is concern about the new iPhone's sales. Quarterly iPhone shipment growth began slowing year on year with the release of the iPhone 6s in the second half of 2015 and has only recently started to bottom out. For all the fanfare typically associated with new iPhones, many market watchers this time around are waiting to see the announcement and pre-order numbers before passing judgment.
A second factor keeping investors cautious is the growing influence of Chinese smartphone makers. South Korea's Samsung Electronics leads in terms of global market share, but Huawei Technologies and other Chinese names are hot on second-ranked Apple's tail. About 60% of TDK's smartphone parts are believed to go to Chinese and South Korean brands. Inventory adjustments by Chinese smartphone makers that started this year are still ongoing, pointed out one executive at a major parts supplier.
A third reason for concern comes in the form of a stronger yen, which eats into electronic parts suppliers' proportionally high overseas earnings. The Japanese currency is now trading at around 110 yen against the dollar, compared with 125 yen in mid-2015, before the iPhone 6s release.
That said, some analysts remain bullish about the smartphone market thanks to augmented reality and other innovations. Morgan Stanley's Katy Huberty predicts that iPhone shipments will top 260 million units in fiscal 2018, a 20% increase from expectations for this year. Huberty argues that the new model will usher in a sales "supercycle."
It typically takes a few days after iPhone pre-ordering begins for a picture of orders to emerge. If advance reviews prove correct, iPhone sales -- which some contend have reached a saturation point -- could be in for a rebound.
Japanese parts makers are trying to lessen their reliance on smartphones and develop new earnings sources in automobiles and other fields. And not all shares in the sector are depressed: Motor supplier Nidec has hit an all-time high on its aggressive acquisitions. Yet Apple remains an important customer. The question is whether parts makers' stock prices will defy expectations for the better.