Executive Summary of Events for the Quarter Ending June 2012
We have revised our forecasts for the June 2012 quarter for passive components downward due to lackluster lead-time performances for capacitors, resistors and inductors in the month of June. Primary component vendors interviewed for the report blame the European economic crisis as the primary reason for a market slowdown.
Regarding the outlook, we expect the passive components market to continue to grow slightly in dollar value on a quarter-to-quarter basis compared to the prior quarters to support demand from the growing smartphone business worldwide. Although this will primarily elevate only segments of the market, primarily MLCC and thick film chip resistors; additional positive impact is expected to affect the ultra-small tantalum capacitor market and the surface mount chip inductor markets. The primary reason the component demand from the smartphone segment will increase in the coming quarters is primarily based on the higher component content in smartphones compared to traditional wireless handsets. The fact is that handset manufacturers are rapidly transitioning away from traditional phones and turning toward smartphones as a percentage of total sales. Further supporting this outlook was the press release on June 27th from ESI Corp., a manufacturer of MLCC test equipment, who noted an increase in sales of MLCC test equipment to Japan and Korea in June 2012.
Other markets important to the passive component market, including the computer and TV set markets continue to underperform, with the computer market having the tablet business impact sales of notebooks and desktops (which consume more components) and the global TV set market impacted by lack of consumer sales in Europe.
Bright spots in the market continue to be the automotive end-use market segment, the medical electronics segment, the oil and gas/downhole pump segment, some defense platforms and the previously mentioned smartphone and tablet business.
Economic Indicators: Lead-Times
Capacitor Lead Times Continue to Relax Across the Board
The lead times for capacitors continue to show signs of improvement in 2012, but this is a small positive upward movement and does not reflect the market upswing we had hoped for. The financial crisis in the European markets continues to drag down the global capacitor industry, and while we see minor activity in lead times, they remain impotent compared to prior quarters.
Graph 1.1: PPI ANALYSIS: This chart illustrates how lead times for capacitors as a whole (all dielectrics combined) have turned upward in April, May and June 2012, but the increases are small and even though they are positive they remain lackluster and continue to underperform.
CERAMIC CAPACITORS: Lead times for ceramic capacitors remained unchanged in June 2012 compared to the prior month and due to the massive consumption of ceramic capacitors in all electronic devices this is a clear indication of the impotence of the market. Primary vendors blame the European financial crisis and look toward the September quarter for salvation from increased orders for high capacitance MLCC from the Smartphone business segment.
ALUMINUM AND EDLC CAPACITORS: Lead times for aluminum capacitors continued to inch upward in June 2012, with electric double layer carbon capacitors remaining elevated, an increase in axial leaded aluminums (for automotive) and an increase in polymer H-Chip, a tantalum replacement for the computer and game console markets. Although these movements remain slight and not suggestive of any major market turnaround. Positive upswings in both the TV set market and the computer markets will be required to significantly impact sales of small electrolytic capacitors, while demand from the industrial segment will have to improve to grow the large cap business.
TANTALUM CAPACITORS: Tantalum capacitor lead times remained unchanged in June 2012 compared to May 2012 after May monthly lead times increased slightly. The relationship between the tantalum capacitor market and the underperforming computer markets continue to keep this market down. The outlook is for minor improvement in the ultra-small case size tantalum chip business to support expected increased demand from the smartphone business in the coming quarters. However, a large scale turnaround will depend on positive results from the computer segment and from the telecommunications infrastructure market segments.
PLASTIC FILM CAPACITORS: The film capacitor lead times showed no signs of change in June 2012. The market is tied to industrial products including power supplies and lighting ballasts and remains lackluster in its June quarterly performance.
Resistor Lead Times also Underperform:
After showing signs of positive activity in May 2012, the linear resistor market slowed down again in June 2012. Positive activity in the axial and radial leaded resistor markets slowed down in June. Other linear resistor product markets including thick film chips, networks and thin film chips demonstrated mostly unchanged lead times for June on a month-to-month basis.
Graph 1.2: PPI ANALYSIS: The illustration above shows how linear resistor lead times slowed down again in June compared to May. It appeared as if the market was improving in May but the lead times slowed down again in June. Primary vendors blame the European financial crisis on lackluster demand.
THICK FILM CHIP RESISTORS: The illustration above shows how linear resistor lead times slowed down again in June compared to May. It appeared as if the market was improving in May but the lead times slowed down again in June. Primary vendors blame the European financial crisis on lackluster demand. Increases in lead times for the 0402 thick film chip resistors were offset by a slowdown in lead times for the 0805 thick film chips. Other thick film chip resistor lead times showed no change in June compared to May 2012 data.
AXIAL AND RADIAL LEADED RESISTORS: After an increase in activity in axial and radial leaded resistors in May 2012 the lead times remained unchanged in June supporting an overall lackluster market for industrial related products into which axial and radial leaded resistors are sold.
RESISTOR NETWORKS: After minor activity in resistor networks in April and May, primarily for the coated SIP, the market remained unchanged with respect to lead times in June 2012. All network products, including SMD DIPs, arrays and molded SIPs showed no change in lead times for the past seven months.
THIN FILM RESISTORS: Thin film chips demonstrated unchanged lead times for all case sizes, except for the 1206, which actually slowed down in June on a month-to-month basis.
DISCRETE INDUCTORS: Discrete inductors showed no change in lead times in May or June 2012 compared to April 2012 and in fact lead times have demonstrated a slowdown in lead times all year.
Graph 1.3: PPI ANALYSIS: Lead times for all inductor products, regardless of configuration and type have shown no change in lead times for June 2012. This includes the ferrite bead, the axial and radial leaded products and the SMD chip coils. A clear slowdown in ferrite bead demand is evident in the lead times for 2012.
Global Market Value and Outlook:
We have revised the estimates for the June 2012 quarter with respect to the value and volume of consumption for passive components as is shown in the chart above. The lackluster lead times in June, coupled with primary vendors citing the European economic crisis as hurting sales caused us to slash our market forecasts for the June quarter and to make long term quarterly forecasts through March 2013 showing only slight improvements on a quarter-to-quarter basis.
Graph 1.4: PPI ANALYSIS: The value of passive component shipments is forecasted to show only a slight improvement in consumption value for the June quarter. We believe that demand will begin to pick up in September and December to support increased product builds for smartphones which have a much higher passive component content than conventional phones, however this will primarily impact only certain segments of the market, primarily MLCC and thick film chip resistors, but to a lesser extent the small case size tantalum chip capacitors and the SMD chip inductor markets too.
Passive Component Raw Material Pricing Index:
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 3.24% decrease in June 2012 compared to May all base metal and precious metal raw materials that are covered in the index have demonstrated continuous decreases in pricing since January 2012 and are indicative of a weak global economy.
Graph 1.5 PPI Analysis: In June 2012 prices for all base metal raw material products continued to decline, including the base metals of nickel, copper, aluminum and zinc- each of which showed continued decline in overall price suggesting weakness in the global economy. Precious metals pricing showed mixed pricing results in June, with palladium metal rising slightly in price on a month-to-month basis, but silver prices are declining. Tantalite and ruthenium prices remained unchanged.
Statements of fact and or opinions expressed in MarketEYE by its contributors are the responsibility of the authors alone and do not imply an opinion of the officers or the representatives of TTI, Inc.
Dennis M. Zogbi
Dennis M. Zogbi is the author of more than 260 market research reports on the worldwide electronic components industry. Specializing in capacitors, resistors, inductors and circuit protection component markets, technologies and opportunities; electronic materials including tantalum, ceramics, aluminum, plastics; palladium, ruthenium, nickel, copper, barium, titanium, activated carbon, and conductive polymers. Zogbi produces off-the-shelf market research reports through his wholly owned company, Paumanok Publications, Inc, as well as single client consulting, on-site presentations, due diligence for mergers and acquisitions, and he is the majority owner of Passive Component Industry Magazine LLC.