Japanese electronic components are expected to post strong Apr-Jun earnings, with AI/DC demand and MLCC product competitiveness determining sustainability
AI summary card
Japanese electronic components are expected to post strong Apr-Jun earnings, with AI/DC demand and MLCC product competitiveness determining sustainability
Morgan Stanley expects combined operating profit for 19 covered electronic component companies in Apr-Jun to increase 33.6% year-over-year, but it emphasizes that the sustainability of strong earnings depends on AI/data center demand, the share of high-value MLCC products, raw-material costs and valuation absorption.
- The combined operating profit of covered companies in Apr-Jun is expected to be ¥319.2bn, up 33.6% year-over-year and 8.3% sequentially.
- FY26 covered-cohort operating profit is expected to reach ¥1.5419trn, above the FactSet consensus estimate of ¥1.4912trn, up 31.1% year-over-year.
- Murata remains Top Pick, with the report saying that demand growth for small-size, high-capacity MLCCs in AI server and data center applications should further highlight its product strength.
- Taiyo Yuden remains UW. Even though MLCC demand is improving, the lack of a stronger high-value MLCC product mix relative to Murata and high valuation are the core pressures.
- Ibiden has strong short-term profitability support from AI/DC-related ABF package substrate demand, but it remains UW as market expectations and valuation are still too high.
Report interpretation
Overview
This report provides a preview of the Apr-Jun quarterly earnings for Japan-focused covered electronic component companies. The core view is that AI/data center-related demand continues to support growth in ABF package substrates, MLCCs, HDD heads, and connectors, with covered-company profitability expected to keep expanding; however, earnings sustainability needs to be assessed with product mix, raw-material prices, FX rates, and valuation levels.
Core views
The report is most constructive on companies with high-value-addition products and dual competitiveness in technology and cost, particularly Murata’s leading position in small-size, high-capacity MLCCs for AI servers. In contrast, although Taiyo Yuden benefits from a recovery in MLCC cyclical demand, improvement in its high-value MLCC mix is limited and valuation is still high; Ibiden’s AI/DC-related ABF package substrate demand is strong in the near term, but the realization threshold for long-term targets and valuation remain high. The report also notes that rising precious-metal and aluminum-foil raw-material costs will squeeze profits for some connector, capacitor, and crystal-device companies.
Analysis framework
The analytic framework is centered on quarterly operating-profit forecasts, comparing company guidance with FactSet consensus expectations and decomposing demand drivers by product line, including AI/data center, MLCC, ABF package substrates, HDD heads, connectors, capacitors, and crystal devices. The report also incorporates target price, current share price, P/E, ROE, P/B, FX sensitivity, and market-share assessment to evaluate risk and return.
Methodology notes
Using OP as the core KPI, compare analyst forecasts, company guidance, and FactSet consensus expectations.
The report provides F3/27 1Q or the corresponding-quarter OP forecast for each company and evaluates potential impacts on FY consensus EPS.
Assess medium- to long-term profit differences through MLCC miniaturization, higher capacitance, market share, and application mix.
The report argues that AI servers and data centers drive demand for small-size, high-capacity MLCCs, and that Murata is more likely to be the main beneficiary given its volume-capacity and cost competitiveness.
Assess earnings impact on covered companies under assumptions of ¥155/$ and ¥180/€.
The report estimates that ¥1/$ currency movement impacts the covered portfolio’s full-year OP by about ¥14.9bn, equivalent to 1.0% of FY26e OP.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Murata Manufacturing 6981.TTop Pick / OW
- Strengths
- Demand growth for small-size, high-capacity MLCCs for AI/data center use is rising, with stronger product mix, superior MLCC volume capability, and cost competitiveness.
- Weaknesses
- The stock has already risen significantly, and MLCC cyclicality may impact near-term valuation.
- Comparison
- Compared with Taiyo Yuden, Murata has greater advantages in high-value MLCC mix and mass-production yield.
- Risks
- AI server demand below expectations, MLCC price declines, yen appreciation, or intensified competition.
- Taiyo Yuden 6976.TUW
- Strengths
- Recovery in MLCC sales and utilization rates, with F3/27 1Q OP expected to improve sequentially.
- Weaknesses
- Limited improvement in high-value MLCC mix, relatively high valuation, and sharp share-price increase in 2026.
- Comparison
- The report believes the profit gap versus Murata may widen.
- Risks
- If MLCC sentiment and share-price momentum continue, the UW view may come under pressure; otherwise, valuation-decompression risk is substantial.
- Ibiden 4062.TUW
- Strengths
- Strong sales of high-value-addition ABF substrates for AI/data center semiconductors; sales related to NVIDIA Rubin platforms have surpassed Blackwell.
- Weaknesses
- High market expectations and valuation; high hurdle to achieve the F3/31 OP target of ¥300bn.
- Comparison
- Short-term profit upside is strong, but the report views valuation support as weaker than for other beneficiaries.
- Risks
- AI packaging-substrate demand and customer platform pacing could change; if long-term targets are met, valuation pressure may ease.
- TDK 6762.TOW
- Strengths
- Growth in HDD heads and passive components, with potential contribution from future DC BBU charging batteries.
- Weaknesses
- Limited profit growth from charging batteries in F3/27.
- Comparison
- Growth drivers are more diversified and not entirely dependent on MLCC.
- Risks
- HDD customer demand, pace of charging-battery recovery, and FX changes.
- Hirose Electric 6806.TOW
- Strengths
- Growth in industrial equipment and AI server connector sales, with long-term ROE improvement supported by shareholder returns and strategic capex.
- Weaknesses
- Rising precious-metal prices negatively affect profits.
- Comparison
- Compared with more raw-material-sensitive connector peers, its recognized support comes more from sales growth and improved capital policy.
- Risks
- Rising precious-metal costs such as gold and weaker industrial demand.
- Niterra 5334.TOW
- Strengths
- Spark plug profits remain stably high, oxygen sensor share is rising, and sales of electrostatic chucks for semiconductor equipment are growing.
- Weaknesses
- Part of profit improvement stems from a non-recurring negative item in 4Q that is not expected to recur.
- Comparison
- Profit quality is relatively resilient, with both automotive and semiconductor-equipment-related catalysts.
- Risks
- Automotive demand, SPE customer demand, and post-normalization growth rates after one-off factors disappear.
Key data
- 4-6 month aggregate OP forecast for covered companies¥319.2bnUp 33.6% year-over-year and 8.3% sequentially.
- FY26 covered-portfolio OP forecast¥1.5419trnFactSet consensus estimate is ¥1.4912trn; up 31.1% from FY25 ¥1.1762trn.
- Global MLCC shipments forecastUS$14.67bn in 2025; US$24.25bn in 2028The report expects 2025 year-over-year growth of 10.3%, and a three-year CAGR of 18.2%.
- Estimated 2025 MLCC market shareMurata 40.8%, SEMCO 22.5%, Taiyo Yuden 11.3%, TDK 6.9%, Yageo 5.4%Murata is seen as the primary beneficiary of small-size, high-capacity MLCCs for AI servers.
- Murata F3/27 1Q OP forecast¥90.4bnFactSet estimate is ¥85.6bn; the report expects MLCC for AI/data center and product-mix improvement to support profits.
- Ibiden F3/27 1Q OP forecast¥21.6bnFactSet estimate is ¥20.2bn; growth in electronics sales and lower depreciation support short-term profitability.
- FX assumption¥155/$ and ¥180/€A ¥1/$ fluctuation is estimated to affect covered-portfolio annual OP by ¥14.9bn.
Impact & implications
The investment implication is that AI/DC demand remains the most important source of incremental earnings in Japanese electronic components, while the market will increasingly focus on the quality and sustainability of profits. High-value-addition MLCCs, ABF packaging substrates, HDD heads, and industrial/AI server connectors have clearer benefit. Companies with a larger share of commodity MLCCs, aluminum electrolytic capacitors, crystal devices, or precious-metal-sensitive products may face cost pressure, valuation exhaustion, or share-competition risks.
Risks
- If AI/data center demand falls short of expectations, the growth thesis for MLCC, ABF packaging substrates, HDD heads, and connectors would weaken.
- Rising costs of aluminum foil and precious metals may compress profits for aluminum electrolytic capacitor, connector, and crystal-device companies.
- Stocks that have already rallied materially, including Taiyo Yuden and Ibiden, face valuation-absorption risk.
- Yen appreciation may reduce profits of companies with high overseas-dollar revenue and Japanese production footprints.
- Higher commodity MLCC prices may attract competitors from China, Korea, and Taiwan into the mid-to-high-end market, affecting long-term market share.
What to watch
- The pace of Murata's AI/data center small-size, high-capacity MLCC order intake, utilization rates, and product-mix improvement.
- Progress in Ibiden's ABF substrate sales related to NVIDIA Rubin versus Blackwell.
- Whether the gap between Taiyo Yuden's share price and F3/31 profit expectation continues to widen.
- The impact of precious-metal and aluminum-foil prices on companies such as Hirose, JAE, Nippon Chemi-Con, and KOA.
- Changes in ¥/$ and ¥/€ and company disclosures on FX sensitivity.
- After Apr-Jun results, revisions to company guidance, FactSet consensus expectations, and sell-side forecasts.