Summary of Key Points from the Conference Call Industry Overview - Focus on the Asia technology (hardware) sector, particularly the AI supply chain, as a priority investment area for 1H26 due to its significant influence on earnings growth amid concerns over smartphone/PC demand and auto production recovery [2][12] Core Themes and Stock Recommendations 1. **AI Supply Chain Investment**: - Emphasis on investing in the AI supply chain, which is expected to drive earnings growth despite potential slowdowns in other sectors [2][12] - Anticipation of clearer benefits from AI for earnings in 2026, with no signs of slowdown heading into 2027 [12] 2. **Under-the-Radar AI Themes**: - Five notable themes identified: 1. **Power Consumption**: Opportunities in power supply, power rack products, capacitors, and power semiconductors. Companies to watch include Delta Electronics, Panasonic HD, Murata Mfg., Taiyo Yuden, and Renesas Electronics [6][25] 2. **Data Transmission**: Advancements in large-scale data transmission technologies, with companies like Fujikura and Mitsubishi Electric highlighted [6][25] 3. **Niche Components**: Price stabilization and increases in demand for components like MLCCs and substrates, with key players including Murata Mfg. and SEMCO [6][25] 4. **Physical AI Integration**: Companies like Hitachi and Mitsubishi Electric are leading in embedding AI into industrial applications [6][27] 5. **Software/Services Disruption**: Generative AI's potential to improve productivity in Japan's software industry, with Fujitsu and NEC as key players [6][27] 3. **High-Profile Sub-Sectors**: - Continued growth in foundry, memory, semiconductor production equipment, AI servers, and edge AI, with recommended stocks including TSMC, Samsung Electronics, and Hon Hai [30][31] Market Dynamics and Risks - **Top-Down Risks**: - Concerns regarding valuations, implementation risks, over-investment, monetization challenges, and funding sources, particularly with emerging players in the market [13] - **Bottom-Up Perspective**: - Fundamentals differ from the IT bubble of 2000, with a larger scale and longer timeline for AI infrastructure development, and sound supply chain management in Asian hardware [14][16] Technological Advancements - **Power Consumption Trends**: - Significant rise in power consumption for AI servers, with expectations for voltage increases to 800V and beyond, creating business opportunities for power-related products [33][38] - **Data Transmission Innovations**: - Transition to higher communication speeds (800-1.6Tbps) and co-packaged optics (CPO) expected to enhance industry value [58][59] Conclusion - The Asia technology sector, particularly the AI supply chain, presents substantial investment opportunities driven by technological advancements and evolving market dynamics. Key players and themes are positioned to benefit from these trends, while investors should remain cautious of potential risks associated with rapid market changes.

Summary of the Investor Presentation on Electronic Components Industry Overview - The electronic components industry is currently rated as **In-Line** by Morgan Stanley, indicating a balanced view on potential growth and risks in the sector [1][4][9]. Key Drivers - The demand for high-performance electronic components is being driven by the expanding range of devices leveraging **AI computing** [1]. - There is an expectation that **valuations** and the sustainability of **Earnings Per Share (EPS)** growth will come under scrutiny, which may impact investor sentiment [1]. Company Ratings and Target Prices - **TDK (6762)**: Rated **Overweight** with a current price of **¥2,250** and a target price of **¥3,100**, indicating a potential upside of **38%** [8]. - **Murata Manufacturing (6981)**: Rated **Overweight** with a current price of **¥3,330** and a target price of **¥3,850**, suggesting a **16%** upside [8]. - **Niterra (5334)**: Rated **Overweight** with a current price of **¥6,967** and a target price of **¥6,300**, indicating a downside of **10%** [8]. - **Meiko Electronics (6787)**: Rated **Overweight** with a current price of **¥10,720** and a target price of **¥11,700**, suggesting a **9%** upside [8]. - **Hirose Electric (6806)**: Rated **Overweight** with a current price of **¥17,645** and a target price of **¥22,800**, indicating a potential upside of **29%** [8]. - **Ibiden (4062)**: Rated **Equal-Weight** with a current price of **¥7,158** and a target price of **¥6,500**, suggesting a downside of **9%** [8]. - **Taiyo Yuden (6976)**: Rated **Equal-Weight** with a current price of **¥3,673** and a target price of **¥3,100**, indicating a downside of **16%** [8]. - **Mabuchi Motor (6592)**: Rated **Equal-Weight** with a current price of **¥1,441** and a target price of **¥1,450**, suggesting a slight upside of **1%** [8]. - **Nichicon (6996)**: Rated **Equal-Weight** with a current price of **¥1,657** and a target price of **¥1,450**, indicating a downside of **12%** [8]. - **Hamamatsu Photonics (6965)**: Rated **Underweight** with a current price of **¥1,708** and a target price of **¥1,300**, indicating a downside of **24%** [8]. Earnings and Market Trends - The report highlights that **Capex by Hyperscalers** has increased significantly, which may influence the demand for electronic components [10]. - There is a focus on the **connector market** and the performance of various companies within this segment, including **Niterra** and **Meiko Electronics**, which are expected to show continued earnings growth [10]. Additional Insights - The report emphasizes the importance of monitoring the **gap between actual demand** and electronic component shipments in 2026, which could indicate potential supply chain issues or overcapacity [1][8]. - The **global market share trends** for specific components, such as **spark plugs** and **exhaust gas oxygen sensors**, are also discussed, indicating a competitive landscape [10]. Conclusion - The electronic components industry is poised for growth driven by AI and increased demand, but investors should remain cautious about valuations and potential scrutiny on EPS growth. The ratings and target prices for key companies reflect a mix of optimism and caution, highlighting the need for careful analysis in investment decisions [1][4][8][10].

Summary of Conference Call Notes Industry Overview - **Industry**: Electronic Components in Japan - **Key Companies**: Ibiden, TDK, Murata, Taiyo Yuden, HDD manufacturers Core Insights 1. **Investor Interest in HDDs**: There has been a notable increase in investor inquiries regarding HDDs, particularly concerning the production bottlenecks and capacity increases for NL-HDDs in data centers. The production volume of NL-HDDs dropped from 7.45 million units in June 2022 to 2.60 million units in June 2023, with a partial recovery to 6.16 million units by May 2025 [8][8][8] 2. **Earnings Growth Expectations**: Investors have high expectations for Ibiden's earnings growth in the medium term, driven by its significant market share in FC packages for NVIDIA GPUs. However, there are concerns regarding near-term earnings for F3/26 [3][3][3] 3. **AI and Computing Demand**: Companies like Ibiden, TDK, and Murata are expected to benefit from the growing demand for computing components due to the rise of AI technologies. Ibiden is projected to see substantial increases in unit prices of its FC package boards with each new GPU generation [2][2][2] 4. **TDK's Market Position**: TDK has a ~40% share of the global mobile device battery market and is anticipated to see significant sales and profit growth from rechargeable batteries starting in F3/26 2Q. However, there is skepticism among investors regarding TDK's communication strategy about its earnings [4][4][4] 5. **Murata's Earnings Potential**: Investors believe that while Murata's F3/26 1Q earnings are favorable, concerns about declining sales of RF modules for 2025 model smartphones may hinder share price growth. The demand for MLCCs is expected to have a more significant impact on earnings than RF modules [7][7][7] Additional Important Points 1. **Production Bottlenecks**: The decline in NL-HDD production is attributed to workforce reductions during previous downturns, making it challenging to scale up production in response to rising demand. Companies like Suncall have exited the suspension manufacturing market, contributing to supply issues [8][8][8] 2. **Market Dynamics**: The market is demanding increased capacity for NL-HDDs, with manufacturers raising product capacities to 24TB and beyond. This shift is creating a competitive landscape where bottlenecks in production are a critical concern [8][8][8] 3. **Valuation and Risks**: Ibiden's valuation is based on a DCF model with a WACC of 6.3%. Risks include potential competition from overseas in the ABF package market and weaker-than-expected demand for CPUs [15][16][16] Conclusion The electronic components industry in Japan is experiencing significant interest from investors, particularly in the context of AI and computing advancements. Companies like Ibiden, TDK, and Murata are positioned to benefit from these trends, although they face challenges related to production capacity and market dynamics.

Investment Rating - Industry View: In-Line [3] Core Insights - Japanese electronic component companies are distinguished by their value-added products, which are characterized by more layers and components that are smaller, thinner, lighter, and more durable [5][11] - The demand for high-performance computing and data centers is expected to accelerate due to advancements in deep learning and AI [5][11] - The automotive sector is transforming into mobile communication and sensor devices, necessitating more sophisticated components [5][11] - The rise of 5G smartphones and AI smartphones will require components that are more value-added, smaller, thinner, and lighter [5][11] - AI smartphones and AI PCs will demand higher electric power and batteries with increased capacity [5][11] Summary by Sections Market Demand - There is a growing need for value-added components in high-performance computing, AI smartphones, and automotive applications [13][14] - The server market is experiencing growth driven by AI servers that require high value-added components [31] Component Specifications - High-performance computing requires more advanced ABF (flip chip) package substrates for CPUs and GPUs [14] - The automotive sector, including ADAS and electric vehicles, requires durable components with enhanced value [14] - AI smartphones are projected to consume more electricity and necessitate batteries with higher energy density, such as silicon anode lithium batteries [14] Market Share and Growth - Murata held a 47% market share in MLCCs in 2023, an increase from 28% in 2004, showcasing its leadership in value-added products [14] - The total sales in the electronic components market for F24 reached JPY 12,548.1 billion, with significant contributions from various sectors including smartphones and automotive [16] Component Usage - The number of components required in various applications highlights the importance of MLCCs, with smartphones requiring approximately 1,000 MLCCs per device [18] - The automotive sector can require between 5,000 to 8,000 components, emphasizing the complexity and demand for high-quality parts [18] Future Trends - The shift towards Chiplets in HPC semiconductors is anticipated, which will involve more complex packaging solutions [14] - Business opportunities in the mobility industry utilizing IoT technology are expected to expand, leading to increased demand for high-performance modules [14]

Investment Rating - The report maintains a "Buy" rating for Taiyo Yuden with a 12-month price target of ¥3,200, indicating an upside potential of 29.1% from the current price of ¥2,480 [5][8]. Core Insights - Taiyo Yuden has focused on enhancing its supply capabilities over the past three years, establishing new MLCC production sites in Niigata and Malaysia, which has led to increased fixed costs [1]. - The company plans to shift its focus towards new product launches, particularly in MLCC applications where it can achieve a top-two market position and high margins [1][2]. - There is significant growth potential in automotive applications, especially powertrain products, and industrial machinery, particularly base stations [1]. - Taiyo Yuden aims to increase MLCC capacity utilization from 85% to 90% by FY3/27, with a goal to restore the companywide operating margin to 15% [1]. - The company sees opportunities for leveraging its technologies to create value as part of its next growth strategy [1]. Summary by Sections Company Overview - Taiyo Yuden primarily manufactures inductors, mobile telecom devices, and circuit modules, with MLCCs accounting for approximately 60% of total sales [6]. Market Dynamics - The electronic components sector is increasingly driven by social infrastructure needs, such as automobiles and industrial machinery, rather than consumer electronics [6]. - The structural supply/demand balance in the industry is expected to remain stable, reducing the risk of significant deterioration [6]. Financial Projections - Revenue projections for FY3/26E and FY3/27E are ¥347.0 billion and ¥377.5 billion, respectively, with operating profit expected to rise from ¥20.0 billion in FY3/26E to ¥32.5 billion in FY3/27E [8]. - Earnings per share (EPS) is projected to increase significantly from ¥89.7 in FY3/26E to ¥170.5 in FY3/27E [8].