Sharp's Lens Unit CEO Sees Path to Defying Smartphone Slowdown
(Bloomberg) -- The mobile phone industry may be in a midst of a slump, but a unit of Sharp Corp. is forecasting growth thanks to the race by smartphone makers to wow customers with high-quality photos.
Kantatsu Co., a maker of camera lenses for Apple Inc. and Huawei Technologies Co., expects sales will rise 15 percent to 150 million units in the year ending March 2019, Chief Executive Officer Keiju Akutsu said in an interview. Kantatsu also plans to list shares on the Tokyo Stock Exchange next fiscal year, Akutsu said, declining to give further details.
The mobile-phone industry has hit a slowdown as global smartphone shipments fell 8.5 percent in the fourth quarter, according to researcher IDC. As markets from the U.S. to China grow more saturated and replacement cycles lengthen, manufacturers are looking to lure buyers with dual-camera models that offer wide-angle shots and the "bokeh" effect which blurs the background to give pictures a glossy, professional look. That means multiple lenses packed more densely in the same slim form factor, according to Simon Chan, a Bloomberg Intelligence analyst.
“The smartphone market may be flat this year, but the proportion of dual-camera phones is increasing,” Akutsu said in an interview at the company’s plant in Fukushima, north of Tokyo. “There is no such thing as general purpose lenses for us; every customer wants a custom order.”
To meet the demand, Kantatsu is boosting its total monthly output capacity by 20 percent to 30 million units by June 2019. The company’s two plants in Zhejiang, China already run at full capacity during peak times, limiting its ability to pursue new customers, Akutsu said.
Sharp, controlled by Foxconn Technology Group since a 2016 transaction, raised its stake in Kantatsu in March to 53.5 percent from 44.3 percent. The investment is part of Foxconn Chairman Terry Gou’s bid for greater control over the smartphone supply chain. The Taiwanese manufacturer assembles iPhones for Apple and has for about a decade tried to bootstrap its own lens business with little success. With Kantatsu under its umbrella, Gou can now take on Apple’s main lens supplier Largan Precision Co.
“Foxconn is trying to integrate vertically, because components offer good margins,” said Chan. “Having access to components in-house can also make its assembly smoother.”
Kantatsu was founded in 1979 as a venture producing loading mechanisms for Sharp’s VCRs. The mechatronic mechanism required a high level of manufacturing precision because the magnetic head and the tape had to align within one-thousands of a millimeter. But by late 90s prices of players plunged, and the company had to look for a new business.
“For years, we did our work in a world that’s measured in microns,” Akutsu said. “It turns out that lens manufacturing also has some of the most severe precision requirements.”
Japanese feature phone makers including Sharp were the first in the world to popularize handsets equipped with a cameras in the early 2000s. Kantatsu landed many of those orders and eventually went on to supply Nokia at the peak of the Finnish company’s dominance. But those customers didn’t fare well in the industry’s shift to smartphones like the iPhone. Instead, Largan rose to dominate the market because of its connection with Apple.
Kantatsu estimates it supplied less than 4 percent of the smartphone industry’s lenses last year. But for models offering 12 megapixels and more, the market share was about 6 percent and it will rise to 10 percent this year, Akutsu said.
Smartphone lens modules for higher-end phones typically combine five or six pieces made out of clear plastic. Engineers use simulation software to determine the optical properties of each piece and how to stack them to get the desired results. The key to raising production yields is in the design of injection molds, boxes of machined metal the size of a car battery. The molds are kept highly secret and Kantatsu never sends schematics to its Chinese manufacturing arm for fear the blueprints may leak.
Kantatsu is now developing rectangular lenses to match the shape of the underlying image sensors that convert light into ones and zeros. That would reduce a camera module’s footprint to meet demand for increasingly thinner bezels on smartphones.
“Every year, the manufacturing gets harder and harder,” Akutsu said. “But if you have the technology to keep up, you can continue to win stable market share.”
©2018 Bloomberg L.P.