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Parts makers' profits seen plateauing amid smartphone slowdown

OSAKA -- Earnings at five of six major Japanese electronic components manufacturers are expected to fall in the fiscal year ending March 2017 amid slumping smartphone sales and a significantly stronger yen.

Murata Manufacturing projects net profit to drop 13% to 178 billion yen ($1.63 billion) -- the first decline in five years. Sales growth in the communications business, which accounts for about 60% of total sales, is seen decelerating sharply from 29% to 2%. The slowing expansion of the smartphone market and Murata's shrinking share of the communications module market will likely cut into factory operating rates, pushing up fixed costs. Growing depreciation expenses and research and development spending will also drag on profits.

"It's unreasonable to expect growth on par with last year's every year," President Tsuneo Murata said of the communications business. The chief executive said he sees demand for smartphones compatible with high-speed networks remaining brisk, bolstering demand for Murata components often used in such handsets.

Nitto Denko, too, will likely take a hit from slower smartphone growth. It forecasts net profit to fall 14% to 70 billion yen this fiscal year, with revenue in the optronics segment, including materials for liquid crystal display screens and touch panels, down 12%. TDK projects net profit to drop 23% to 50 billion yen as weaker demand for personal computers eats into sales of its mainstay hard-drive components.

Kyocera and Alps Electric see net profit falling 22% and 18%. Only Nidec expects growth -- and even there, the forecast 7% rise marks a slowing from last fiscal year's 21% jump. Aggregate net profit at the six companies is seen sinking 13%.

Apple said Tuesday that revenue slid 13-17% on the year in the April-June quarter. This owes mainly to lackluster iPhone sales, which are proving a heavy blow to Japanese manufacturers that supply many parts for the handset line. But some have high hopes for the iPhone 7, expected to launch as early as this fall.

Yen appreciation poses a further burden. Murata's guidance assumes 110 yen to the dollar, compared with last fiscal year's average of 120.14, knocking 35 billion yen off operating profit. The Japanese currency's strength is seen weighing down profit by 13 billion yen at Nidec, which assumes a similar rate.

Parts makers are scrambling to cultivate revenue sources beyond smartphone components. Nitto makes nucleic acid drugs for client companies, a growing business where it sees revenue rising 29% this fiscal year. Kyocera, whose telecommunications equipment segment has been stuck in the red for two straight years, forecasts a 4.2 billion yen profit for the business in fiscal 2016, planning to stanch the bleeding through such steps as consolidating production facilities.

Aggregate net profit at the six companies grew 13% to 590.1 billion yen in fiscal 2015, thanks to solid sales of smartphone parts and a soft yen through the first half of the year.

(Nikkei)

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