Passive Electronic Components: Quarterly Outlook Report

11.08.2011 // Posted by: Dennis Zogbi // Posted in: Articles, Passives

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Short-Term Demand Is Weak; And 20% of Tantalum Capacitors Just Went Offline

Executive Summary of Events for October 2011

• September 2011 quarterly revenues for passive electronic component manufacturers should be down by 7% collectively on a global basis.

• AVX and Kemet reported quarter-to-quarter declines of 7% and 8% respectively, while Yageo and Walsin reported a 9% and 8% decline in quarter-to quarter sales respectively.

• NEC-Tokin Corp., which supplies 20% of the world’s supply of tantalum chip capacitors (in units) lost their primary PathumThani factory to the devastating Thailand flooding. 100% of tantalum capacitors are produced at this location for NEC- a major global player in tantalum capacitor supply to wireless handset manufacturers, computer manufacturers and game console vendors.

• Rohm Company Limited’s factory in Thailand was also inundated by the flooding in that country and operations have ceased. This factory produced resistors, integrated circuits, active components and also tantalum capacitors.

• The impact on the tantalum capacitor supply chain should not be underestimated. Tantalum capacitors are critical components used in the production of notebook and tablet computers, smartphones, automotive electronics and digital video cameras, among other items. The unique aspect of the two factories that were taken off line by this flood in Thailand is that they both are major suppliers of ultra-small case size tantalum chips as well as large case size conductive polymer tantalum chips. The supply chains to the smartphone and computer industries in Japan, Korea and Taiwan will be significantly impacted by this event, and price increases are inevitable so that other tantalum capacitor vendors can meet short-term demand.

• Regardless, the December 2011 quarter for all passive components combined (capacitors, resistor and inductors) is now expected to be down by 9.85% in revenues collectively on a quarter-to quarter basis. Kemet stated that their December quarter would be down by 11% to 14% while AVX predicted their December quarter would be down by 9%.

• Raw material pricing shows mixed information, with precious metals, including palladium and ruthenium declining slightly, but key base metals, such as nickel and copper, increasing slightly from October 2011.

Economic Indicators: Lead-Times:

Capacitor Lead Times Continue to Relax Across the Board:

Capacitor Lead Times showed continued signs of relaxation in October 2011, further indicating a general slowdown in the global high-tech economy. Primary sources at the major capacitor manufacturers confirm that unit demand had slowed substantially in September and again in October, and that the December quarter would be lackluster as well.

Graph 1.1: PPI ANALYSIS: Global lead times for capacitors, including all dielectrics dropped by 6% on a month-to-month basis in October 2011, which was a continuation of the easing of demand which began in October 2010, and has relaxed each month since that time, accept for the Spike in April 2011, which was the result of panic buying in the market in the wake of the Tohoku quake in Japan. It is important for the reader to note that October 2011 lead times for capacitors have fallen to the lowest levels since before March of 2010.

ALUMINUM CAPACITORS: Aluminum Electrolytic Capacitor Lead Times continued to relax in October 2011; continuing their downward trend after the panic buying spree following the damage to plants owned by Nippon Chemi-Con, the world’s largest vendor of aluminum capacitors in the Tohoku quake of March 2011. On a month-to-month basis, lead times for aluminum dielectric capacitors eased by 5.9% in October compared to September. The October slowdown in the aluminum capacitor market is due to continued weakness in component demand coming from the personal computer segment and the television set segment, each of which consume large volumes of radial leaded, V-Chip and H-chip type aluminum capacitors. Major vendors of aluminum capacitors include Nippon Chemi-Con, Nichicon, Rubycon, and Panasonic.

CERAMIC CAPACITORS: Ceramic capacitor lead times declined by 2% in October 2011, compared to the prior month, illustrating a market that has had excess capacity due to massive capacity expansions by Samsung and Murata. The spike in demand in April 2011 was the direct result of panic buying following the damage to the Nippon Chemical Industrial and Sakai Chemical raw material factories which supply critical titanate materials for ceramic capacitor production. In September and October we estimate a slowdown in demand for all end products which consume MLCC, including computers, handsets, TV sets and other consumer audio and video imaging product lines. Major MLCC manufacturers include KEMET, Murata, TDK, Samsung, Taiyo Yuden and Kyocera/AVX.

TANTALUM CAPACITORS: Lead times for tantalum capacitors continued their relaxation in October after many months of truly tight supply and higher prices due to increasingly tight supplies of tantalum ore, and much higher prices for the ore that is available. Relaxation in lead times is also indicative of a slowdown in demand from the personal computer segment (notebooks and desktops). Lead times declined by a whopping 13% for tantalum capacitors in October compared to September. However, as we have previously noted, flooding in Thailand caused the cessation of supply of tantalum capacitors from the NEC-Tokin plant in PathumThani. The NEC factory, which was inundated by floodwaters estimated at 9 feet, will not be able to supply parts for an estimated 3 to 6 months. The NEC factory supplied 20% of the units in the global tantalum market. Also a victim of the devastating Thailand floods was the Rohm Company Limited factory, which also manufactures tantalum capacitors and fixed resistors (as well as ICs and other silicon components). Therefore, the impact on the tantalum supply chain by the flooding in Thailand should not be underestimated. What many customers fail to realize is that the combined loss of these two factories places a substantial strain on ultra-small P and J case tantalum chip supply to the global wireless handset industry; as well as a strain on the large case size conductive polymer chip capacitors consumed in notebook computers, tablets and game consoles. Therefore, in November of 2011, we expect lead times for tantalum capacitors to increase. Price increases are also expected. Major vendors of tantalum capacitors include AVX, Kemet, NEC, Vishay, Nichicon, Holystone/Hitachi and many others.

PLASTIC FILM CAPACITORS: Lead times relaxed again in October but by only 1% compared to September, including relaxation in the lead times for hard to get snubber and radial leaded configurations, which means that even demand from the power segment is showing signs of weakness. Plastic film capacitors are consumed primarily in industrial, lighting and power markets, and in renewable energy systems, and demand for these parts had been moving counterintuitive to other capacitor markets, which was compounded by PET film supply shortages; however, in October even these markets show signs of slowing down. Major film capacitor vendors include Panasonic, Kemet, Vishay, TDK-EPC and many others.

Resistor Lead Times Also Easing:
Linear resistor lead times declined by 1.5% on a month to month basis in October 2011, with most product lines remaining unchanged month over month, but slight noticeable declines in hard to get through hole (axial and radial) resistors and thin film chip resistors, which we perceive as being the relaxation of demand following the panic buying the struck the market in April following the Tohoku quake in Japan.

Graph 1.2: PPI ANALYSIS: Linear resistor lead times have averaged 13 to 14.5 weeks= all year and we note only slight variations on this theme. Through hole products, used in power, industrial and specialty markets have maintained longer lead times, while chip resistors consumed in computers, handsets and TV sets remaining in plentiful supply. The uptick in March and April was the result of the Tohoku quake in Japan causing global panic buying; however, the trend since that time has been continual relaxation in lead times. This relaxation of demand trend has continued in October 2011. Major resistor vendors include Vishay, TT Electronics, Panasonic, KOA, Yageo, Walsin and Rohm.

THICK FILM CHIP RESISTORS: Lead times for thick film chip resistors moved differently than other passive component markets in October 2011. In fact, lead times for thick film chip resistors increased by 5.8% compared to September 2011 lead times. Increases were noted for the 0201, 0603 and 0805 cases sizes on a month-over-month basis and probably signifies an inventory adjustment. Major manufacturers of thick film chip resistors include Yageo, KOA, Panasonic, Vishay, Walsin and Rohm.

AXIAL AND RADIAL LEADED RESISTORS have demonstrated erratic lead times since 2010 due to their consumption in industrial, power and lighting segments. However, in October 2011 we note a 2.9% decline in lead times, signifying further weakness in the market. Carbon film and nichrome film resistors show the largest amount of relaxation in lead times, while lead times for metal foil and tin oxide resistors remained unchanged on a month-to-month basis.

RESISTOR NETWORKS Lead times for resistor networks relaxed by 1.5% in October 2011 compared to the previous month. Dual-In-Line Packages (DIPS) relaxed the most while the coated SIP, which has caused supply problems all year, actually increased to 19 weeks.

Inductors Slowing Down:

DISCRETE INDUCTORS have demonstrated steady supply and demand equations all year compared to the capacitors and resistors. After the spikes in March and April as a result of the Japan quake, lead times have settled back down to their normal levels. Inductors are primarily consumed in large volumes in handsets, computers and in telecommunications infrastructure equipment, as well as in power supplies. They are not consumed in the same mass volumes as other passive components, and capacities at TDK, Taiyo Yuden, Sumida and TOKO, among others, remain plentiful.

Graph 1.3: PPI ANALYSIS: Primary vendors of inductors reported to Paumanok that demand had slowed down substantially for the months of September and October-which is historically unusual, and points toward a softening in the global economy. In fact for the month of October, lead times relaxed by 5.4% on a month-to-month basis compared to September 2011. Discrete inductors have demonstrated varying lead times, with the axial and radial leaded parts, and SMD chip coils, showing much higher lead times when compared to ferrite beads. The axial and radial leaded inductors are consumed primarily in power, industrial and lighting end markets, while chip coils are consumed in wireless handsets. Ferrite beads are consumed in personal computers, and in other digital electronics items requiring noise abatement. October lead times for chip coils declined to 13 weeks, as did lead times for axial/radial leaded type inductors, while lead times for ferrite beads remained unchanged at 11 weeks.

Global Market Value and Forecast:

We have revised our Quarterly forecasts for global passive component consumption down 7% (revised) for the September 2011 quarter in terms of dollar value to $5,427 Million USD. We anticipate that the December quarter will be down by 9.85% on a quarter-to-quarter basis and the March 2012 quarter will show a return to the upward growth cycle. We believe that there are two criteria working against the market. The first is the excess inventory in the supply chain brought about by panic buying following the Tohoku earthquake in March, and a slowdown in the global economy, instigated by problems in Europe, with an emphasis upon Greece’s financial crisis. This combination of events has resulted in a market slowdown during a time when the market is usually up in anticipation of the holidays. Therefore we forecast that the market should return to its growth cycle in the March 2012 quarter.

Graph 1.4: PPI ANALYSIS: Forecasts for consumption for passive components on a global basis have been revised to face the market realities of the September quarter, which we now forecast down by 7% (Revised). We now believe based upon statements by Kemet and AVX that the December quarter will be down by 9.85% globally and that the upward cycle will return in the March 2012 quarter.

Passive Component Raw Material Pricing Index:

PPI ANALYSIS: The Passive Component Raw Material Index (which covers engineered material and feedstock pricing for raw materials consumed in the production of passive components) showed a 3.5% increase in October 2011, which was brought about by the increase in nickel and copper prices. All other material prices continued their decline, which results in mixed signals from this leading economic indicator. Palladium, Ruthenium and Tantalite each continued to relax in price, while silver and crude oil prices inched upward.

Graph 1.5 PPI Analysis: Pricing for nickel and copper which are consumed in MLCC electrodes and terminations increased in October, while pricing for aluminum and zinc used in aluminum capacitors and resistors continued to decline, signifying uncertainty in the markets. Palladium, which is consumed in low layer count MLCC showed a decline in October and again in as did ruthenium, which is consumed in thick film resistor pastes. Tantalite, according to primary sources, also showed slight signs of price relaxation in October, silver however, which is consumed in low layer count MLCC electrodes and terminations, showed a slight increase in price on a month-to-month basis.

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