NEWS RELEASE Jun 11, 2020 R&I View: Electronic Components Companies Struggle with Automotive Businesses Eyes on investments in advanced fields Demand for automotive electronic components has plunged in the wake of the novel coronavirus outbreak. In the January-March 2020 period, TDK Corp. (Sec. Code: 6762, Issuer Rating: A+) and Taiyo Yuden Co., Ltd. (Sec. Code: 6976, Issuer Rating: A) posted net losses due primarily to impairment losses on assets associated with automotive businesses, combined with a seasonal decline in smartphone-related demand. Alps Alpine Co., Ltd. (Sec. Code: 6770, Issuer Rating: A-), which derives around 70% of consolidated sales from automotive products and components, including car navigation systems, fell into an operating loss. As growth in unit sales of smartphones and other digital devices became difficult to envisage, many electronic components companies have been actively investing in expanding automotive businesses as the core of their growth strategies. If automobile production and sales continue to be stagnant for a protracted period of time due, for example, to the slow containment of the coronavirus or the emergence of a serious second wave, the earnings impact will be amplified. Should development plans for next-generation vehicles be disturbed, the risk of impairment of related facilities and goodwill will also warrant attention. R&I will keep an eye on the earnings of Nidec Corp. (Sec. Code: 6594, Issuer Rating: AA-) and MinebeaMitsumi Inc. (Sec. Code: 6479, Issuer Rating: A), which have made aggressive investments in the growth of their automotive businesses in recent years. Demand is rising for products such as notebook and tablet computers and game consoles, reflecting changes in the way people live, as exemplified by the wider adoption of teleworking and consumption at home driven by restrictions on going out. While demand for hardware will eventually subside, a shift from face-to-face to online communications should increase data traffic, boosting investments in data centers. Ibiden Co., Ltd. (Sec. Code: 4062, Issuer Rating: A) and Shinko Electric Industries Co., Ltd. (Sec. Code: 6967, Issuer Rating: A-), both of which provide IC packaging substrates, and Hosiden Corp. (Sec. Code: 6804, Issuer Rating: BBB), whose products are used in game consoles and other applications, enjoy a tailwind. There is also momentum to accelerate the introduction and spread of fifth-generation mobile communications systems. A broad range of cutting-edge electronic components is vital to the evolution of both infrastructure and hardware toward a more advanced information society. Murata Manufacturing Co., Ltd. (Sec. Code: 6981, Issuer Rating: AA), which has technological capabilities that allow it to address such fields and can make continuous investments even amid a challenging external environment, would be able to strengthen its competitiveness further. Many of the electronic components companies rated by R&I are in a net cash position, since they have accumulated capital as their businesses expanded. Because their financial management gives consideration to the possibility of large short-term fluctuations in demand, the companies generally have financial bases that can withstand a temporary earnings downturn. Ratings are expected to hold steady for electronic components companies with competitiveness in each product and sector. Companies that were saddled with poor earnings bases and low earning capacity even before the coronavirus pandemic have weak resilience to recession, and their financial bases may deteriorate further. If the coronavirus impact is prolonged, the ratings for Nissha Co., Ltd. (Sec. Code: 7915, Issuer Rating: BBB+), Nippon Chemi-Con Corp. (Sec. Code: 6997, Issuer Rating: BBB, Rating Outlook: Negative) and Sanken Electric Co., Ltd. (Sec. Code: 6707, Issuer Rating: BBB-) may come under stronger downward pressure. Attention should also be paid to the implications of the escalating U.S.-China conflict for the electronics industry. R&I will analyze how the companies' creditworthiness is affected while examining the timing and pace of demand recovery. Lead Rating Analyst: Takayuki Hamada ■Contact : Sales and Marketing Division, Customer Service Dept. TEL. +81-(0)3-6273-7471 E-mail. 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