Passive Component Suppliers’ Earnings: Recovery in PC and Server Demand Drives Margin Expansion

Over the past two days, four passive component suppliers reported their June quarter results. Compared with our expectations, Murata Manufacturing’s numbers were slightly lower, Samsung Electro-Mechanics’ were mainly in line, and TDK’s and Yageo’s were higher. Such divergence in earnings performance is mainly due to differences in product portfolios, but demand by end-product generally showed a similar trend. While industrial products remained sluggish and automobiles and smartphones are stagnating, demand for applications related to high-performance computing, such as servers and PCs, seem to be improving. While we maintain our earnings forecasts and fair value estimate of JPY 4,000 for Murata Manufacturing, we plan to review our earnings forecasts for Semco, TDK, and Yageo after meeting with each company in early August. Overall, we expect that margin expansion for passive component suppliers will continue to improve in the coming quarters, driven by the better capacity utilization and an improved product mix. However, the strengthening of the Japanese yen could be a risk factor for Japanese suppliers.