July 21, 2025 02:56 PM GMT Electronic Components | Japan US Marketing Trip: A Lot of Investor Interest in HDDs in Addition to AI/Computing Jul 14-17 saw us visit 18 institutional investors in the US. We found high expectations for Ibiden earnings growth mid term but concerns for the near term. We also found high interest in issues such as Murata's potential to boost earnings growth and bottlenecks for NL-HDD production growth. Key theme was AI/computing: The following firms are expected to benefit from grow ...

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].