What should we be watching in the current supercycle? Japan’s conservative approach to capacity expansion, and the opportunity it creates for Chinese materials, components, and equipment suppliers to move upmarket. Sinocera (国瓷材料) recently said at an earnings briefing that its key raw materials for high-end MLCCs had passed qualification at some customers. Sinocera is a China-based materials company that supplies ceramic dielectric powders, a critical raw material for MLCCs. This market was long considered the exclusive domain of Japanese suppliers. Chinese companies, to the extent that they participated, were generally seen as serving only the low end. But demand is surging, while Japanese companies remain far too cautious. Just look at Murata’s president telling the media that no one knows when the AI supercycle might end. Japanese companies are being excessively conservative. That is why Japan will inevitably cede market share to China. And the implications extend well beyond the current cycle. How much capacity will China add in the next cycle? How much more market share will Japan have to give up? Once customers have qualified Chinese suppliers to meet rising demand, they will continue using them during the downcycle as well. That will put even greater pressure on Japanese companies when the cycle turns. Frankly, I find Taiwanese stocks more attractive than Japanese materials and components plays.

According to mainland Chinese news outlet Jiemian News (界面新闻), Apple previously relaxed some of its yield-related quality-control standards due to limited production capacity for the iPhone Duo. This reportedly increased the likelihood of units prone to display failures reaching the market. Apple’s quality control for the iPhone Duo is the worst in the company’s history.