Murata Manufacturing and other Japanese tech suppliers are cutting their dependence on China as the US-China stand-off deepens.
The world’s largest capacitor maker and an iPhone parts supplier, Murata said in November that it would open a new plant in Thailand in October 2023. In an interview with Nikkei Asia, Murata president Norio Nakajima said the new plant would eventually be expanded to become as large as the one in Wuxi, near Shanghai, where Murata produces multilayer ceramic capacitors for consumer electronics.
Murata, which has depended on greater China for more than half of its revenue, expects the share to go down over time as the company looks to Indo-Pacific for future growth. It is an example of Japan Inc trying to deal with geopolitical risks amid US-China rivalry.
“There is a risk of events happening beyond our control,” such as Washington imposing a technology ban on China, Nakajima said. “It is imperative to diversify our supply chain.” He added that key customers such as Apple were also diversifying away from China. Murata used to symbolise the enduring economic ties between Asia’s two largest economies, but the US-China trade rift has left business leaders like Nakajima nervous.
Murata is not just responding to the trade war. It is also looking at long-term demographic trends.
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“The most populous country today may be China, but in 2030 that will be India, and further down the road it will be Africa,” Nakajima said. “Will those economies be aligned with China or the US? We don’t know. We should be able to respond to both scenarios.”
Nakajima, who became Murata’s president in June 2020, is credited with transforming the Kyoto-based company from a local electronics maker into a key Apple supplier. He is the first company leader from outside the founding Murata family.
The company supplies smartphone devices such as filters for picking up some radio signals; amplifiers for strengthening signals for transmission; and duplexers for handling incoming and outgoing signals simultaneously. They are used in the Apple iPhone, Samsung Galaxy and Huawei Mate smartphones, among others. The components are fitted into smartphones in China for shipment to final markets, with the US being the most important, according to Nakajima.
These components need to be designed differently, even though they perform the same functions, to match the operating system of each smartphone brand, Nakajima said. As the trade war raised barriers to technology transfer, each brand developed its own design and operating system, which meant that parts suppliers also had to tailor their products accordingly and, in the process, increase the overall workload. “It’s a difficult task,” Nakajima said.
For Murata, the US-China decoupling is not the only supply chain challenge. Chip shortages have hobbled production at Japanese automakers, slowing demand for electronic components, he said.
Murata itself has difficulty supplying products such as batteries for electric power tools and WiFi modules for automobiles, owing to a shortage of power management integrated circuits and transceiver integrated circuits, Nakajima said. He expects chip shortages to ease this year.
Murata is not the only Japanese high-tech company adjusting its supply chain amid geopolitical uncertainty.
Renesas Electronics, a top Japanese chipmaker, is concerned that it might be barred from supplying to China, a market that accounts for 22 per cent of its sales, owing to the US-China trade war.
Renesas depends on its US operations for its main business of manufacturing analogue semiconductors, which convert analogue signals such as sound, images, motion and temperature into digital signals. The US is the global centre of analogue semiconductor production, led by Texas Instruments and Analog Devices.
In 2021, Renesas bought UK-based Dialog Semiconductor for $6bn in an attempt to diversify its technology base into Europe, making it possible to supply chips to China using European technology.
Renesas chief executive Hidetoshi Shibata stressed the importance of access to talent and technology in the US and Europe. In a speech at an industry event hosted by SEMI, a global industry association, in December, he explained how the Tokyo-based company, created through the merger of Hitachi, Mitsubishi Electric and NEC’s semiconductor operations in 2010, diversified its technology base through a series of US acquisitions in the past five years, and also plugged its talent gap in Europe with the Dialog acquisition.
“It is talent that matters most,” Shibata said.
Tokyo Electron, one of the world’s largest chip equipment makers, is another company racing to diversify its geographical footprint.
Appearing at the SEMI event, Tokyo Electron chief executive Toshiki Kawai laid out his company’s strategy of strengthening its leadership through closer ties with top European companies, amid an intensifying challenge from Chinese chip equipment makers. He highlighted the recently announced partnership with Belgian research institute Imec and Dutch company ASML, the leading lithography machine maker, to develop cutting-edge chipmaking equipment.
“To develop the next-generation devices, we will promote collaboration with our customers around the world,” Kawai said.
Like the US, China and Japan, Europe is now trying to increase local chip production to minimise the risk of supply disruptions amid tensions between China and Taiwan.
Europe used to be a big chip-producing region. It now accounts for just 10 per cent of global production, as companies such as STMicroelectronics and Infineon subcontract production to foundries such as TSMC.
Europe wants to boost its global share to at least 20 per cent by 2030.
Chip equipment makers are in a position to benefit from moves by these countries to localise their semiconductor supply, which raises the question of where they should set up shop. Production at Tokyo Electron takes place almost entirely in Japan, even as more than 80 per cent of its sales come from overseas.
“Our rivals are shifting production overseas to be closer to their customers,” a Tokyo Electron official said. That will make it easier for them to serve their customers, rather than from supply chains spread across the world. “We will have to think harder about where we should produce, in Japan or overseas,” the official said.
A version of this article was first published by Nikkei Asia on January 10 2022. ©2022 Nikkei Inc. All rights reserved