Since its founding in 1940, Murata Manufacturing Co. Ltd. has faithfully followed a strategy of organic growth, using research and development to build a broad line of capacitors, filters, resistors, microwave parts, and other components that have enabled it to become a multibillion-dollar global supplier.
The prolonged industry downturn, however, has tested that strategy. Murata's revenue and earnings have tumbled, forcing the company to trim its workforce and lower capital investment. And increasing OEM pressure has forced Murata to continue to reduce commodity part prices.
But don't expect the Kyoto, Japan, company to deviate from its longtime approach. Considered by analysts a technology leader, Murata is leveraging its core ceramic expertise to develop higher-margin products such as Bluetooth modules, as well as higher-performance capacitors to capture emerging applications. The company is also increasing its presence in China.
"Everything is changing in terms of what people do and where," said John Denslinger, senior vice president of Murata Electronics North America Inc., Smyrna, Ga., one of the company's 47 wholly owned subsidiaries in Asia, Europe, and North and South America.
Murata remains the world's leading manufacturer of multilayer ceramic capacitors (MLCCs), accounting for more than 20% of the global market based on revenue, according to Dennis Zogbi, an analyst at the Paumanok Group, Cary, N.C.
The company also considers itself a market leader in SAW filters with a 20% share, and dielectric filters with a 40% share, figures that Zogbi doesn't dispute.
"They are so clever, tactically and strategy-wise," he said. "They're the epitome of a smart business in passives."
Eschewing the outsourcing trend of other suppliers, Murata remains vertically integrated, forming its own ceramic materials and building its own machines. The company consistently reinvests 5% to 8% of its revenue in R&D, and made its last notable acquisition in 1981.
"They have the ability to support a broad product line," said Shawn Wood, an analyst at iSuppli Corp., El Segundo, Calif.
Not bullet proof
But strong technology and serving as a one-stop-shop supplier has not shielded Murata from the severe industry downturn.
For its 2001 fiscal year ended March 31, 2002, the company's revenue was $2.97 billion, down 32.4% from the previous year. Net income was $394 million, down 66% from the prior year. Murata projects revenue and earnings for fiscal 2002 to be roughly flat with that of fiscal 2001.
Capital investment for fiscal 2002 is projected at $200 million, down from $260 million in fiscal 2001.
Denslinger expects Murata's revenue to slowly improve over the next year, but cites price erosion in commodity parts as the main hurdle to recovery.
"A lot of OEMs now negotiate price contracts on a quarterly rather than yearly basis," he said, adding that capacitors have experienced 12 consecutive quarters of price reductions. Denslinger expects prices to erode 10% the first half of 2003.
Not helping matters is a weak end market for communications products, Murata's largest market segment. The company's percentage of revenue from communications slid to 37% in fiscal 2001 from 41% in fiscal 2000.
But Murata remains committed to the sector for the long term, according to the vice president of marketing for Murata Electronics North America, Jiro Miyazaki, who expects the company to supply EMC filters, thermistors, and DC/DC converters to OEMs building broadband, home networking, and digital access equipment.
Climbing the curve
To improve margins, Murata is trying to scale the technology curve for its capacitors, which account for 40% of revenue. The company is expanding its offerings in capacitors with low-equivalent-series resistance as well as with capacitance values exceeding 1 microfarad.
By doing so, Murata hopes to target the RF market and applications in which tantalum capacitors now dominate.
But Paumanok Group's Zogbi is not convinced of that strategy.
"Murata believes ceramics will solve all problems," he said. "The question is, can you produce something in large enough volumes at the dielectrics you are competing against?"
Denslinger expects the company's focus on advanced technology to fend off low-cost Far East suppliers like Taiwan's Yageo and Korea's Samsung that compete against Murata's commodity MLCCs.
"Japanese companies like Murata have a much higher level of technology than other Asia-Pacific companies, something that customers value," iSuppli's Wood said.
Murata is also moving up the value-add chain in other products. The company, for example, is leveraging its low-temperature co-fired ceramic technology to manufacture integrated Bluetooth modules.
Last week, Murata announced its newest Bluetooth module, which at 9.3 x 7.8 x 1.8mm is 25% smaller than the previous version introduced in August. The module, for wireless handset and PDA applications, sells for $15 to $20--two to three times more than component-based solutions from suppliers like Texas Instruments Inc.
Scott Klettke, Murata's group product manager, said the higher price is justified since the module speeds time-to-market for designers of Bluetooth products.
"Modularization is the way to go," Zogbi said. "The only problem is, there are maybe 30 other companies doing ceramic modules, many for Bluetooth."
Technology aside, Murata expects its percentage of revenue from China, 14% in fiscal 2001, to increase as more of its OEM and EMS customers locate there.
Last month, the company began mass production of capacitors, isolators, and thermistors at a plant in Wuxi. Murata's other China plants are in Beijing, Suzhou, and Shenzhen.