Kyocera Earnings: Slower Recovery for Semiconductors Weighs on Near-Term Profitability

Two passive component suppliers, Murata Manufacturing and Kyocera 6971, reported their earnings results for the June quarter. While Murata’s profit for the quarter was better than expected due to the resilient demand for flagship smartphones, Kyocera’s profit was slightly below our expectations because of the sluggish demand for semiconductors and industrial tools. Although the inventory correction for smartphones and PCs appears to be largely complete, both companies are concerned that the demand recovery for electronic components is slower than expected, and therefore we expect Kyocera’s operating income for fiscal 2023 to fall short of the company’s guidance. On the other hand, we expect Murata’s operating income to exceed its full-year guidance, as the inventory correction for MLCCs, or multilayer ceramic capacitors, has been completed earlier than for other components. After fine-tuning earnings forecasts, we maintain Murata’s fair value estimate of JPY 9,700 and Kyocera’s fair value estimate of JPY 8,200. We view Murata’s shares as undervalued, with market share gains in radio-frequency modules from 2024 to 2025 a share price catalyst.

Kyocera’s June-quarter operating income of JPY 25.7 billion was slightly below our expectation of JPY 27 billion. We believe that demand for fine ceramics used in semiconductor manufacturing equipment will not recover throughout fiscal 2023 due to high memory inventory levels and limited capacity expansion plans. Similarly, we expect that it will take a few more quarters to digest the channel inventory of tantalum capacitors. Meanwhile, thanks to the restructuring implemented last year, the profitability of the telecom equipment and smart energy businesses is likely to improve more than expected. However, we expect this will not be enough to offset the weakness in electronic components and devices. We forecast Kyocera’s operating income for fiscal 2023 to be JPY 135 billion, lower than the full-year guidance of JPY 145 billion.