Murata Manufacturing, key smartphone supplier, predicts 10% decline in demand

Murata Manufacturing Co., a key component supplier to the world's smartphone market, said it expects to receive fewer orders from handset makers this year due to a drop in consumer demand brought on by the Covid-19 pandemic.

The company said it expects 10% lower demand from phone makers and a decline of close to 7% for its overall sales in the current fiscal year due to the virus. Murata reported Thursday an increase in operating profit to 52.4 billion yen ($492 million) in the quarter ending March 31, improving on its year-earlier results of 41.7 billion yen.

The Kyoto-based firm provides various key components, such as chip capacitors, batteries and circuit boards to top handset makers, including Apple Inc. and Huawei Technologies Co. Its performance serves as a bellwether for the mobile industry's manufacturing outlook.

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"The published forecast was clearly a negative surprise. The market had expected Murata to see smartphone production to rise or at least stay flat. A 10% decline shows how serious the impact is from Covid-19 on the global economy," said Hideki Yasuda, an analyst at Ace Research Institute.

Smartphone sales have slowed dramatically during the period of virus-imposed lockdowns, with China, the world's biggest phone market, suffering a record decline. As recently as this month, manufacturers had seemed undeterred and were sticking to their road maps and orders with Murata.

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Norio Nakajima, a Murata veteran who's set to take over as president in June, told Bloomberg News earlier this month he expected continued robust demand from handset makers despite the economic blow from the pandemic. Now the company appears less sure.

"The outlook is extremely hard to foresee now," said Chairman Tsuneo Murata on the company's earnings call.

Murata plans to spend 200 billion yen in the current fiscal year to boost production capacity and construct plants and research facilities, the company said in its earnings statement. Its production facilities in China and Japan have reopened after having to shutter to prevent the spread of the coronavirus, and its Philippines and Malaysian factories are scheduled to resume work in mid-May.