Passive components – weaker guidance for September quarter :: Macquarie Research

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Passive components – weaker
guidance for September quarter
Event
 Passive component companies including Koa (6999 JP, ¥913, not rated) and
AVX (AVX US, US$15.29, not rated) have guided for flat QoQ growth for the
September quarter. We think other Japanese passive component companies
are likely to voice a similarly weak trend in the reporting season later this
week.
Impact
 Weak guidance for September quarter. Koa’s 1Q FY3/12 sales rose 1%
QoQ to ¥10.8bn, which is slightly higher than its ¥10.5bn (-1% QoQ)
guidance. Koa guided for 2Q FY3/12 sales to remain flat at ¥10.7bn.
Kyocera’s 72%-owned consolidated subsidiary AVX’s 1Q FY3/12 sales rose
4% QoQ to US$436m which is below its 5-7% QoQ guidance. AVX guided for
flat to -2% 2Q sales. It appears July order activities are weaker than expected.
 Peers are likely to voice a similar trend. Koa is a resistor manufacturer and
AVX is mainly a tantalum capacitor maker (12% of AVX’s sales come from
ceramic capacitors). While these products usually see slower growth
compared to MLCC, they all belong to the passive component family which
usually sees similar cyclicality and seasonality. We lowered our forecasts in a
recent sector update Passive components – Expect a lukewarm 2Q FY3/12,
expecting companies to lower 2Q guidance from double digit QoQ growth to
high single-digits but it appears that seasonal momentum might be weaker.
 Price pressure increasing. AVX commented that price pressure has been
below normal but is increasing as supply and demand is brought back into
balance following Japanese companies’ production recovery.
Outlook
 Is weaker 2Q due to inventory correction, weaker end demand or
cautious macro outlook? We think it is probably a bit of everything and it is
difficult to quantify at this moment. While YoY orders/sales growth is likely to
bottom out in 2Q FY3/12, we think guidance and consensus are likely to be
lowered as we enter earnings season this week.
 Kyocera. While AVX’s 1Q sales are weaker, profit execution is sound as we
estimate AVX posted ¥7.6bn profit vs. ¥6.5bn in 4Q FY3/11 (we currently
estimate 1Q electronic device profit flat QoQ at ¥8.4bn). But AVX guides for
2Q gross margin to decline QoQ and we think there is some risk to our
¥11.4bn profit estimate for devices as AVX makes up 70% of electronic
device profit.
 Murata. We estimate 1Q orders are weaker than guidance at ¥139-140bn but
sales should be in line with its ¥145bn given backlogs but we think Murata
might lower its 2Q sales guidance of ¥165bn (up14% QoQ).
 Taiyo Yuden. We estimate 1Q MLCC orders declined 9% QoQ to ¥21bn or
only 40% of its ¥53bn MLCC sales guidance for 1H. While 1Q MLCC sales
could be higher due to backlogs, we think Taiyo Yuden might also revise
down its 1H MLCC sales outlook.