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China slump drags on for Japan’s chip and component suppliers

Written by Nikkei Asia Published on   3 mins read

Inventories are shrinking, but consumer demand lags behind.

Shipments of Japanese electronic parts and semiconductors are starting to pick up, but industry players expect only a slow recovery in the first half of 2024 as Chinese consumer spending remains weak.

Inventories of electronic parts and devices declined for five straight months through December, data from Japan’s Ministry of Economy, Trade and Industry shows. Inventories fell 25% on the year in the October to December quarter after a 20% drop in the previous three months.

Shipments in November held the same level as a year earlier for the first time in 13 months. For October to December, the 1.6% decline was narrower than the previous quarter’s 9.9% decrease.

“The pace of recovery in shipments is slow, and a full recovery is taking longer than in the past because the unusual demand during the pandemic in 2020 to 2021 brought forward demand,” said Koichi Fujishiro, chief economist at Dai-ichi Life Research Institute.

Electronic components and semiconductors—used in smartphones, computers, electric vehicles and other products—are considered a leading economic indicator because their inventory and shipment levels fluctuate ahead of consumer spending.

Inventories in the period between January and March 2022, the most recent peak, were 43% higher than the year before. Demand for electronics surged during the pandemic, but it faded before supplies of parts had a chance to run down. Pandemic-related supply chain disruptions contributed to the problem.

Faced with a glut, memory chip manufacturer Kioxia cut production in October 2022 by 30%. Electronic components producers also lowered factory usage rates and reduced shipments.

After months of inventory adjustments, the end may be in sight for the slump in demand for smartphones, one of the biggest end destinations for chips and electronic components. Global smartphone shipments totaled 326 million units for October to December, climbing 8.5% on the year, US research firm IDC reported.

A drop in prices of NAND flash memory has halted. Taiwanese market research firm TrendForce estimates that contract prices from January to March 2024 will rise 18% to 23% from the previous quarter.

In a normal inventory cycle, shipments would increase while inventories decrease.

But while inventory adjustments in electronic components for major markets are over, demand in 2024 “will not see a V-shaped recovery, although it won’t be as bad as an L-shaped trajectory,” said Noboru Saito, president of electronics company TDK.

Five of Japan’s eight major electronic components suppliers have downgraded earnings forecasts for the year ending March. The combined net profit forecasts for the eight companies are now JPY 109 billion yen (USD 730 million) lower than the previous estimates.

China’s sluggish economy is a major factor. Consumer demand has been slow to return amid deflationary pressures and a real estate recession. The recovery in smartphone sales has been mostly limited to low- and mid-priced models. In January, Apple made an unusual price cut for the iPhone 15 in the Chinese market.

Taiwanese suppliers face a similar outlook. Monthly sales at 19 major Taiwanese chip and electronic parts manufacturers fell 17.2% on the year in December, for the first decline in two months.

“There are customers who are optimistic and customers who are pessimistic,” said Adam Lin, chairman of smartphone camera lens supplier Largan Precision.

Many Japanese suppliers expect no significant recovery until the second half of 2024. Kyocera sees demand for electronic components rising toward summer. Power semiconductor manufacturer Rohm expects to emerge from the inventory adjustment phase in the year ending March 2025.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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