Passive Components Suppliers Earnings: Smartphone Demand Rebound Is a Plus Amid Economic Slowdown

One of the few positive factors for the earnings of the three passive component suppliers was the solid demand for flagship smartphones such as the iPhone, and the recovery of component demand from Chinese smartphone manufacturers as they completed the inventory adjustments. On the other hand, demand for PCs and servers remained weak, and the stagnation in sales for industrials is expected to continue. As a result, the impact on each company’s business was slightly different due to their business portfolios. Murata Manufacturing, which is more exposed to the smartphone industry, has revised its operating income guidance to JPY 270 billion from JPY 220 billion, while TDK has maintained it at JPY 150 billion, and Kyocera has lowered it to JPY 120 billion from JPY 147 billion. While demand for electronic components has bottomed out and is expected to gradually improve, we are cautious that suppliers tend to offer aggressive component pricing during the recovery phase to attract more orders. We believe Murata’s shares are undervalued, while TDK’s and Kyocera’s shares are fairly valued.