Japanese parts makers see orders rise as rivals fill Huawei’s void

TOKYO – In the month that the US banned Huawei Technologies from accessing components with American technology, Japanese electronic component manufacturers saw a new wave of orders from other smartphone makers looking to gain market share.

A Japan display system southeast of Tokyo that produces liquid crystal display panels for smartphones is running at full speed. “There was an order intake that was beyond what our factory can handle,” said a company representative.

Orders from Huawei, the world’s largest smartphone maker, were suspended after Washington’s sanctions went into effect on September 15. Nevertheless, increasing demand from competitors such as Xiaomi, Oppo and Vivo fills the void. Some customers are looking for Japanese technology fearing Washington could extend the ban to other Chinese companies.

According to market researcher IDC, the total number of smartphone shipments will decline for the fourth year in a row in 2020, falling 10% to 1.2 billion units, partly due to the coronavirus pandemic. However, some manufacturers have more aggressive production plans to capitalize on Huawei’s plight.

Apple recently told its suppliers that it plans to produce 220 million iPhones this year, 10% more than its previous estimate. Xiaomi and Oppo, the world’s leading smartphone manufacturers No. 4 and No. 5, want to seriously increase production in 2021 and, according to several vendors, achieve a target of 200 million mobile phones each, which is an increase of more than half compared to 2020 .

A worker holds an OPPO smartphone in a factory in Tangerang, Indonesia. © Reuters

Huawei is projected to manufacture around 190 million phones this year, 20% fewer than in 2019. While it has parts in stock and is building cell phone inventories to minimize the immediate impact of the sanctions, those reserves can only go so far. The company is believed to have around six months worth of components and production is expected to decline from the first quarter of 2021.

The market equilibrium presents new business opportunities for some parts manufacturers.

“Our backlog reached a record high at the end of September,” said a representative from a major electronic parts manufacturer. “Some manufacturers are doubling their production plans for the next year.”

TDK expects procurement from other companies to exceed Huawei’s lost business. One executive called the influx “a little excessive”.

The increase is likely due in part to precautionary measures taken by Chinese companies concerned that Washington might extend sanctions beyond Huawei.

Chip maker Renesas Electronics was asked by a Chinese customer to have non-American engineers redesign a specific product at a facility outside the United States. Zuken, a supplier of printed circuit board design software, reports an increase in interest from companies in China and other countries looking for alternatives to American-made tools.

In some cases, vendors are distancing themselves from the US in order to continue doing business with Huawei. Sumitomo Electric Industries has started using Japanese-made equipment instead of some American equipment to test components for Huawei base stations.

However, large chip manufacturers such as Sony, a major manufacturer of image sensors, and memory manufacturer Kioxia cannot easily swap production equipment. Semiconductor manufacturing involves hundreds of steps that are linked in complex ways.

“This is a particular one-off spike in demand and there may be a correction early in 2021,” warned one supplier.