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Kyocera seeks niche path to smartphone profits with 'tough' handsets

By Yoshiyuki Osada

KYOTO, Japan (Reuters) - Kyocera Corp, an electronic components maker with businesses from office machines to mobile phones, is aiming to expand in smartphones this year while several other second-tier Japanese handset makers are throwing in the towel.

Kyocera, unlike its peers, has put its primary focus not on the familiar home market but on the competitive U.S. market, while pursuing a niche in rugged handsets that is shielded from smartphone juggernauts Apple Inc and Samsung Electronics Co Ltd.

"We won't compete with them head-on, but will tap Kyocera's unique advantages as a components maker," Kyocera President Goro Yamaguchi told Reuters in an interview.

Kyocera has supplied Sprint, the No. 3 U.S. mobile carrier which was recently acquired by Japan's Softbank Corp, and announced late last month that top U.S. carrier Verizon Wireless would also offer its handsets.

Yamaguchi said his company had also discussed possible supply deals with other major U.S. carriers, including AT&T Inc.

Kyocera, which specializes in making waterproof, shockproof handsets and gets 70 percent of its sales in North America, is projecting a 9 percent rise in unit sales and a 7.7 percent revenue increase for its handset division in the financial year to next March. Pretax profit is targeted to rise to 6.4 billion yen ($64 million).

That contrasts with Japanese peers NEC Corp, which has said it will pull out of its loss-making handset business, and Panasonic Corp, which is paring back.

Most Japanese handset producers have focused on the fragmented domestic market, and especially the largest mobile carrier NTT DoCoMo Inc, which was once a reliable customer for a Japanese industry with a dozen handset manufacturers.

INDUSTRY SHAKEOUT

But the industry is now in a shakeout, as DoCoMo pares back the handset makers it is willing to favor with sales promotions and has relented in offering Apple's iPhone, the most popular smartphone in Japan.

Outside Japan as well, the dominance of Samsung and Apple is spurring consolidation. Last week, Microsoft Corp agreed to buy Finland's Nokia Oyj, which was once the world's largest handset maker but has recently fallen on hard times.

Kyocera has a 5.3 percent share of the North American handset market, in fourth place behind Samsung Electronics, Apple and South Korea's LG Electronics Inc, according to Gartner data for the first half of the year.

"Putting out reasonably priced phones featuring waterproofing and dust-resistance - with such add-ons they've expanded their share," Gartner analyst Atsuro Sato said.

Leveraging its components technology, Kyocera has, for example, developed a ceramic part for its handset screens that creates vibrations and helps to produce clearer sound.

The company pieced together its handset business from operations acquired from Qualcomm Inc in 2000 and from Japan's Sanyo Electric Co, which itself was bought out by Panasonic, in 2008.

Its Torque smartphone launched in March cleared tests that included being dropped 26 times from a height of 4 feet and has been popular for use at industrial sites.

($1 = 99.5750 Japanese yen)

(Writing by Edmund Klamann; Editing by Chris Gallagher)

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