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Apple supplier bullish on 2020 as China 5G phone demand kicks in

If Apple Inc introduces its first 5G-enabled models in September, as is widely expected, the orders for components are likely to come in June, Tosaka said. The company has sufficient output capacity to meet the demand, he said.

Apple iPhone_759 Huawei expected to sell 100 million 5G-enabled smartphones in China alone next year.

Taiyo Yuden Co, a Japanese maker of ceramic capacitors used in smartphones, sees increasing demand for its components next year as China pushes ahead with the fifth generation of cellular technology.

“We’re already getting orders for 5G base stations,” Chief Executive Officer Shoichi Tosaka said in an interview on Thursday. “Early next year we should start seeing 5G-related orders for smartphones.”

Huawei Technologies Co and ZTE Corp have led the orders for capacitors used in base stations, Tosaka said. The demand is coming mostly from Chinese carriers, after the Trump administration pushed US allies to exclude Chinese suppliers from their networks. Huawei may sell 100 million 5G-enabled smartphones in China alone next year, Tosaka said.

This should have been a bad year for Taiyo Yuden, as smartphone shipments have sputtered and the US government blacklisted one of its biggest customers in Huawei. Instead, the company has stuck to its May forecast for record revenue and profit. Demand for its capacitors has proven resilient to geopolitical shocks largely because they’re components used in large numbers across all kinds of electronic devices — from smartphones to electric cars. Taiyo Yuden’s shares have more than doubled this year.

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Key Insights:

1) A 5G-enabled phone uses about 1,000 capacitors, or about 30 per cent more than a 4G predecessor. The new wireless standard is power-hungry and requires a larger battery, which leaves less space for other components. That bolsters demand for premium capacitors that can store more energy in a smaller footprint.

2) Huawei is likely to lead the introduction of 5G phones, followed by Samsung Electronics Co, Tosaka said.

3) If Apple Inc introduces its first 5G-enabled models in September, as is widely expected, the orders for components are likely to come in June, Tosaka said. The company has sufficient output capacity to meet the demand, he said.

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4) Taiyo Yuden’s factories are currently running at about 85 per cent of their maximum load, but supply may tighten for the rest of the financial year ending March 2020.

The first batch of 5G-enabled iPhones, whenever they come, will “open up the floodgates” on device upgrades, Wedbush Securities Inc predicted this month. About 350 million iPhones among the Cupertino, California company’s 900 million installed user base are now in the window of an upgrade opportunity, analyst Dan Ives wrote in a note to clients.

The multi-layer ceramic capacitors, or MLCCs, Taiyo Yuden makes are building blocks of the modern world. Tiny components made of metallic plates, they’re used in electronic circuits to stabilize voltage and power flow. Invented in the 18th century by German and Dutch scientists, capacitors are now used in everything from smartphones and televisions to refrigerators and automobiles. Tosaka said the demand for MLCCs is likely to keep growing for the next five years to a decade.

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While many investors still see Taiyo Yuden as a mobile play, the company has succeeded over the past three years in reducing its reliance on smartphone components. The company’s orders used to spike around July and August, driven by preparations for a fall smartphone model refresh, followed by a trough. Now automotive and industrial applications account for close to 40 per cent of Taiyo Yuden’s revenue and Tosaka is looking to raise that proportion to 50 per cent within five years.

“The risk used to be that we sold a lot to a few customers,” Tosaka said, but now “it’s become a long-tail business.”

First published on: 29-12-2019 at 11:37:06 am
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