By Yuichi Utsunomiya, Yusuke Matsukura and Atsuko Motohashi
“If prices of handsets fall, U.S. sales will suffer. The impact on our earnings could be substantial,” said a senior executive with a manufacturer of electronic parts in the Kansai region, expressing strong concern.
Of the fourth round of sanctions that the U.S. has announced it will impose on Chinese goods, the introduction of an additional tariff of up to 25% on smartphones will have the biggest impact on Japanese firms. Apple’s iPhone is a case in point, as the device is mostly assembled in China for shipment to the U.S. If the retail price jumps and sales stagnate, the earnings of related suppliers will take a blow.
Hon Hai Precision Industry, which assembles iPhones, is considering setting up production facilities outside China, but an analyst points to the “difficulty of transferring the assembly expertise to other countries.” As a result, it will not be easy to avert a price hike.
Apple has about 200 contractors, which include many Japanese firms like Panasonic, Sharp and TDK. Sharp cut its group sales forecast for fiscal 2019 to 2.65 trillion yen, a reduction of 600 billion yen from a goal it set in the business plan formulated in 2017. It predicts a reduction in orders for iPhone-related parts, such as LCD panels and cameras. Murata Manufacturing Co. also downgraded its earnings estimate for fiscal 2019 for similar reasons. “If the tariff is raised, Japanese firms will take a devastating hit,” said Akira Minamikawa, director of the Japanese research division at U.K-based IHS Markit Technology.
A number of Japanese manufacturers are relocating their production sites outside China. In August, Mitsubishi Electric moved machine tool production to Nagoya from its Dalian plant in China. Panasonic has been looking into the possibility of relocating car audio system production to Thailand or Malaysia from China since last autumn.
“The introduction of additional sanctions may spur a business model of exporting goods that are produced outside China,” said a senior executive with a megabank. “Countries such as Vietnam are emerging as promising alternatives.” The trend of reviewing production systems is expected to spread globally.