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Apple supplier Murata Manufacturing will start separating its rare earths supply chain in China from the rest of its business over the next three years, as companies rush to insulate themselves from geopolitical turmoil.
Murata, which has a market capitalisation of $46bn, supplies 40 per cent of the world’s multilayer ceramic capacitors (MLCC), components that regulate the flow of electricity used in devices from iPhones to data centres.
Since Norio Nakajima took over as president in 2020, Murata has moved to create two distinct supply chains centred around the US and China as tensions between the superpowers have risen.
The separation was “mostly completed”, but “rare earths are the exception” since they still have to be purchased from China, said Nakajima in a recent interview with the FT.
The need for supply chain independence has been underlined by a dispute between Japan and China over comments by Prime Minister Sanae Takaichi last year on Tokyo’s potential role in a hypothetical conflict over Taiwan.
China said in January it would ban exports of “dual-use” goods, which include critical minerals and rare earths, for military purposes in Japan. Last month, it placed restrictions on exports to dozens of leading Japanese companies.
Beijing has also weaponised rare earths as a bargaining chip in trade negotiations, including with the US last year.
Murata said despite China’s latest ban it was “currently meeting demand through supply from our existing procurement routes and certain level of inventory”.
“We will continue to make every effort to ensure a stable supply going forward,” it said.
Nakajima said he expected the MLCC market to grow rapidly, fuelled by data centre demand and the potential growth of AI-equipped devices such as phones, wearables and vehicles.
Last year, Murata started identifying new sources of rare earths outside China that meet its requirements. The new sources must be tested in components by Murata and its customers, said Nakajima, estimating the process to take about three years before moving on to mass production.
The company said it had not determined how much of its non-China customer base would be converted to the new sources and that it would “take even more time” to switch its entire base.
Murata’s business in China accounted for nearly 48 per cent of revenues in the last financial year to the end of March, due in part to the large volume of iPhones still made in the country. That share has fallen from about 60 per cent in 2021.
The company’s revenues from the rest of Asia have climbed from 15 per cent to 20 per cent as customers including video game company Nintendo and entertainment giant Sony shift production to countries such as Vietnam, Cambodia and India to reduce exposure to global trade tensions.
Nakajima said Murata — which also makes sensors and batteries for data centres, including for Nvidia — was facing competition from Chinese rivals that are closing the technology gap with his company.
He said Murata commanded the top end of the MLCC market but he feared that position could become compromised in the next few years, partly as a result of engineers being poached from rivals in Japan and South Korea.
Right now, Nakajima believes Murata has a “technical advantage” over Chinese rivals of about 10 years. “We will try to keep at least three or four years’ advance,” he said. “This will be our safety lead.”
