Chiba, Japan Anti-Japanese sentiment in China, falling prices and growing competition from a South Korean rival are just a few of the challenges faced by Murata Manufacturing Co Ltd, which supplies Apple Inc with components for its iPhone 5.
But even with those challenges, Murata's president, Tsuneo Murata, said on Tuesday the company is forecasting stronger demand from smartphone makers in the July to September quarter and that its factories were operating at full capacity.
"The decline in prices was worse than expected in the first quarter...and this, as well as the strong yen, is a challenge we continue to drag into the second quarter," Murata said on the sidelines of CEATEC, Japan's consumer electronics trade show.
Murata makes multi-layer ceramic capacitors, key components found in a range of devices from smartphones to televisions. Murata, listed as one of Apple's suppliers in the company's rare supply chain disclosure last year, does not publicly name its major clients, but analysts say the firm is providing key components for Apple's iPhone 5.
When asked about the heavy reliance that component suppliers have on two of the world's largest smartphone makers - Samsung Electronics Co Ltd and Apple - Murata said the situation posed an unavoidable quandary for smaller suppliers.
"On the one hand the situation does make doing business easier since suppliers only have to deal with two companies. On the other hand, the buying power of the firms does increase and the price decline becomes more acute...but of course, this can't be helped," he said.
Murata faces growing competition from Samsung Electro-Mechanics Co Ltd, a unit of the South Korean electronics giant. In order to maintain its lead over the nimble South Korean rival, Murata said the company needs to develop smaller components with larger capabilities and expand product offerings for the medical and automotive markets.
Murata generates 80 percent of its sales abroad, helping it avoid some of the gloom facing its Japanese rivals which are saddled with costly domestic factories that have relied too heavily on demand at home.
Murata also said the company would not meet its earlier target to have 30 percent of its total production moved abroad by March, but said it may aim for an even higher percentage next fiscal year.
The company cut its full-year operating profit outlook to 56 billion yen ($717.40 million) in July, down 17 percent from its previous forecast, citing a decline in product prices, foreign exchange swings and upfront investment costs.
Murata said hundreds of workers at a plant in Shenzhen in China had gone on strike for two days during last month's anti-Japan demonstrations, underlying Japan Inc's worries about relying too heavily on labor in its Asian neighbor. The company said the strike did not cause major delays.
($1 = 78.0600 Japanese yen)
(Reporting by Mari Saito; Additional reporting by Maki Shiraki; Editing by Matt Driskill)