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[Interview] Murata Manufacturing CEO

Japan's Murata redefines customers in game-changing era

The world's largest MLCC maker to add solution-offering business via M&As and to shift to portfolio management

By Oct 08, 2021 (Gmt+09:00)

Norio Nakajima, president of Murata Manufacturing, speaking in an interview with The Korea Economic Daily
Norio Nakajima, president of Murata Manufacturing, speaking in an interview with The Korea Economic Daily

KYOTO, Japan - Murata Manufacturing Co., the world's No. 1 producer of multilayer ceramic capacitors (MLCCs) and other electronic components, will expand its customer base beyond manufacturers and shift into business portfolio management to maintain growth in the rapidly-changing business environment, the company's head said on Oct. 7.

To do so, the Japanese manufacturer will advance into the solution-offering business through mergers and acquisitions to meet the growing demand for modules that combine both hardware and software. The company is also interested in robotics because there are still many jobs for which robots can replace humans.

"To grow our business in a game-changing era, we first need to redefine customers," said Norio Nakajima, president and representative director of Murata Manufacturing, in an interview with The Korea Economic Daily.

In addition to its existing customers including Samsung Electronics Co., LG Chem Ltd. and Apple Inc., Murata is looking to cater to doctors offering remote medical services and factories adopting artificial intelligence-based inventory management systems, as well as research labs and startups of autonomous driving technology.

Murata is among the beneficiaries of pent-up demand for electronics goods in the pandemic era. It plans to increase its MLCC output by 10% per year.

The MLCC, thinner than human hair, is regarded as the staple of the electronics industry because it is widely used in electronic and automotive devices. It stores electricity and supplies electricity as needed, like a dam that traps water and lets it flows when needed.

PORTFOLIO MANAGEMENT

Nakajima noted that companies need to reshuffle their business portfolio to focus on core businesses, while abandoning loss-making businesses. He took the example of LG Group's withdrawal from the smartphone manufacturing market.

Murata, founded in 1944, controls 34% of the world's MLCC market, ahead of Samsung Electro-Mechanics Co.'s 24% and Taiyo Yuden's 14%. It also boasts a high market share in a range of other electronic components, including shock sensors, ceramic resonators and connectivity modules.

It has carried out a series of small-size acquisitions, including its recent purchase of a US smartphone power-saving technology developer Eta Wireless, instead of chasing a mega-deal.

The company has made a transition from family to professional management in June 2020 by appointing Norio Nakajima as president. He joined the company as an engineer in 1985. At the age of 35 in 1996, Nakajima developed an electronic circuitry that contributed to the miniaturization of then brick-size mobile phones.
Multilayer ceramic capacitors (MLCCs) inside wine glasses on display at Murata Manufacturing's headquarters in Kyoto
Multilayer ceramic capacitors (MLCCs) inside wine glasses on display at Murata Manufacturing's headquarters in Kyoto


The following is a translated Q&A script of Nakajima's first interview with South Korean media. It was conducted on the occasion of the 57th anniversary of The Korea Economic Daily. 

▲ Would Murata Manufacturing be able to become a game-changer?

"We first need to refine our customers. Up to now, our customers have been large manufacturers including Samsung Electronics. Going forward, our customers will include medical doctors, mechanical designers of plants and autonomous driving technology developers."

"To be chosen by the new customers, we need to add a solutions-offering business model through M&As, transforming from a simple manufacturer." 

▲ About concerns that Japanese companies' business structure may not work in the game-changing era:

"It would be very important to shift into portfolio management, under which we can swiftly change business structure. For example, LG Group has shut down its smartphone business where it saw no chance of becoming No.1 player and instead, decided to put its remaining resources into home appliances and automotive businesses."

"In contrast, Japanese companies are passive about reshuffling their businesses."

▲ Key reasons for Murata to maintain its competitive edge and market dominance:

"First, it is attributable to our vertically integrated production model. Murata produces raw materials, builds manufacturing facilities and make them on its own, which other companies find it hard to emulate."

"The other factor is our facility investment made with a medium to long-term perspective for the next 10 to 20 years. When it comes to electric vehicles, we had long prepared for the arrival of the era where EVs shift to high-voltage systems such as 800 V."

▲ On the downside of vertically integrated production system, like low profit margins: 

"Under the production system, it is difficult to make a profit because we need to make a new investment whenever the industry undergoes change. But under the horizontally distributed system, in order to produce a new product, we need to teach technology to the company in each stage of the manufacturing process, which would result in initial losses."

"But under the vertically integrated system, we can contain losses in the first stage of the production process. Further, because we have our own production facilities, we can swiftly respond to the change in market trends."

▲ On strong profit margins: 

"Our growth opportunities had come once about every 30 years. The last opportunity came in 2010 when the smartphone market opened up. Our next growth opportunity will likely come in 2040. We make preparation for future businesses with a long-term perspective. That is the key to our (high) profit margins."

(Note: Murata is expected to report an operating profit margin of 21.1% this year, the highest level among electronic components makers.)

▲ On the global trend of reshuffling supply chains to reduce dependence on overseas facilities:  

"Murata runs R&D centers close to its production base, so we can produce state-of-the-art products at home. Although we are increasing overseas production because of the shrinking labor force, there is a low risk of technology leaks because they are conventional products."

(Note: Murata's manufacturing facilities in Japan make up 65% of its total production capacity.)

▲ Reason for the transition from family to professional management: 

"My understanding is that it was intended to improve (management) transparency and proactively respond to the change in the electronics industry, in particular in the areas of 5G wireless, autonomous driving and electric vehicles, which had underwent unprecedented change over the past 10 years."

"The competitive advantage of an engineer-turned-CEO lies in his understanding about technologies." 

▲ On the impact of Japan's export restriction of key chemicals used in semiconductor and display screens to South Korea since 2019:

"It was eventually Japanese materials companies that took a hit from the restrictions. It was in nobody's interest."

Write to Yeong-hyo Jeong at hugh@hankyung.com

Yeonhee Kim edited this article.

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