Taiyo Yuden Earnings: Recovery in Smartphone Demand Offset by Sluggish Server Investment

We have a mixed impression of Taiyo Yuden’s June-quarter results. As expected, the inventory correction for smartphones has largely been completed, evidenced by the recovery in sales of telecom devices. Meanwhile, sales for servers dropped more than expected because of the slowdown in server investment. As a result, while sales of JPY 72.6 billion were in line with our forecast, the company posted an operating loss of JPY 577 million due to the worse-than-expected product mix, which was lower than our expectation of a JPY 1 billion profit. As we expect sluggish server investment to continue for at least the rest of this year, utilization of multilayer ceramic capacitors, or MLCCs, may not improve as quickly as we had expected. Therefore, we are lowering our operating income forecast for fiscal 2023 (financial year ending March 2024) to JPY 20 billion, down 37.5% year on year, and our fair value estimate to JPY 5,700 from JPY 6,000. Despite the slower-than-expected recovery, we reiterate our midterm view that the company will benefit from growing demand for large, high-capacitance MLCCs for automobiles and information infrastructure, and believe that Taiyo Yuden’s shares are undervalued.