Demand for Murata Manufacturing Co.’s lithium-ion batteries is so strong the Japanese firm can’t make enough of them for its own use. But inflated freight costs mean the business is likely to record a loss this year — yet another victim of the ongoing supply chain chaos.
The battery unit is unlikely to report a profit this fiscal year, after Murata resorted to transporting its products by air, President Norio Nakajima said in an interview. The company had previously pledged to turn the division around by March, ending a string of losses since it bought the business from Sony Group Corp. in 2017. Still, Murata is seeing rapid growth and plans to accelerate investment to beef up production capacity, Nakajima said.
“It might still be possible that our battery business posts a profit this term, but I believe I will probably need to apologize for a loss,” Nakajima said. “We are being forced to use airfreight to deliver our batteries because ships are unavailable, and that costs an outrageous amount of money. If we were able to use sea routes, we should be able to make a profit.”
On top of inflated base cargo fees fueled by high demand, batteries shipped via air incur extra handling charges because they’re a fire hazard. The Kyoto-based component-maker’s transportation woes are yet another sign that the global supply crunch affecting holiday deliveries isn’t likely to ease anytime soon. Meanwhile, the new omicron coronavirus variant may push up container rates further next year if the mutation triggers Chinese port closures like those in 2021, according to Bloomberg Intelligence analyst James Teo.
Despite the likely loss, Nakajima said the company is optimistic about the outlook for the batteries business and plans to step up investments to boost production. Murata will spend more than ¥640 billion ($5.6 billion) to increase total output during the three-year period from April next year, with the battery unit set to receive the second-largest share after the company’s flagship multi-layer ceramic capacitor products, he said.
“The speed of the transition to battery-equipped vacuum cleaners, tools and garden equipment from conventional power sources has been much faster than what we had anticipated,” he said.
Murata posted record operating profit of ¥313.2 billion in the previous fiscal year and forecasts higher earnings in the current term, thanks to robust demand from cars and smartphones. Tight supply of components, especially for cars, is likely to persist next year, as the wafer output won’t increase and ships and aircraft should remain busy, Nakajima said.
“Car companies are working on decreasing the number of chips required per vehicle, but that will take some time,” he said. “What they can do for now is just place orders ahead of time, and given the supply of wafers isn’t changing much, I don’t think that would lead to drastic improvement of the ongoing situation.”
Apart from aggressively investing to meet the runaway demand, Nakajima said Murata will be more active in promoting its brand image, a departure from its long-held philosophy of staying completely behind the scenes.
“People don’t know who we are or what we do, and our engineers, especially the young ones, are not quite happy with that,” said Nakajima, who took over the helm from the founding family last year. “We want to be recognized as a company that supports many of the devices you use from within.”
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