iPhone supplier Murata boosting output of foldable circuits

[TOKYO] Murata Manufacturing, the exclusive supplier of foldable circuits for Apple's new iPhone lineup, is boosting its capacity to build the components on the view that demand will increase next year.

The company's MetroCirc circuit boards can be bent, making it easier to pack them into smartphones, including the latest iPhone X and 8 models. Factories are already operating at full capacity, forcing the Japanese company to turn customers away, President Tsuneo Murata said in an interview.

The Kyoto-based manufacturer's relationship with Apple was put to the test earlier this year, when it struggled to keep up with orders for MetroCirc components. The company managed to meet its targets, but the rising cost of production forced it to cut its full-year profit outlook. While Mr Murata said the problem has been solved, he declined to give specifics of the planned expansion.

"The numbers we are seeing now suggest that orders will increase next year," said Mr Murata, son of founder Akira Murata. While MetroCirc has garnered interest from manufacturers outside of the smartphone industry, "we simply don't have the room to accommodate," he said. "For now, it all goes to one customer."

Murata was founded shortly after World War II and, like Sony and other electronics makers, got its start in the transitor radio boom of the 1950s. While few consumers would recognise the name, the company dominates the market for condensers, bandwidth and noise filters found in everything from handsets and smartwatches to televisions and automobiles.

An average smartphone carries about 750 multilayer ceramic capacitors, the key building blocks of modern electronics. Murata controls about 40 per cent of that market. The phones also use as many as 25 filters that improve wireless signals and about 100 devices that block electromagnetic interference. Murata has a 50 per cent and 35 per cent share respectively in those markets, according to the company.

In an effort to keep up with demand earlier this year, Murata shifted MetroCirc production to larger equipment, only to see yields plunge. It cut its operating profit forecast 25 per cent to 170 billion yen (S$2.02 billion) for the year ending March 2018. Shares dropped 6.8 per cent the following day, the biggest slide in 16 months.

The yield for MetroCirc devices has climbed to 95 per cent since, Mr Murata said. The company expects sales of the multilayer resin substrates, which have been in development since 2008, to reach 100 billion yen by 2021 as adoption expands beyond smartphones to wearables and data centers.

Murata has also been on a shopping spree over the past decade, acquiring more than 10 companies to expand into energy, health care and the internet of things. This year, it bought US-based chest sensor maker Vios Medical for US$101 million and semiconductor maker Arctic Sand Technologies for an undisclosed amount.

In September, the company completed its 17.5 billion yen purchase of Sony's lithium-ion battery operations. The business is being reorganised from its focus on Sony's internal needs to serve a broader component market and will become profitable in two to three years, Mr Murata said.

"We are not in a rush to buy our way into new areas," Mr Murata said. "The focus now is on building each of our acquisitions into an earnings pillar."

BLOOMBERG