MarketEye: Amidst the Negative Spiral: Bright Spots Appear

06.02.2009 // Posted by: Dennis Zogbi // Posted in: Articles, Passives

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Most of the global reporting is negative, but there are some areas of positive activity in the passive component industry…

After reporting a significant downturn in revenues for the quarter ending March 31, 2009, the world’s top passive component companies continue to struggle with lower sales volumes, price erosion, negative currency valuations, excessive inventories and slow throughput of manufacturing to bring about one of the worst financial reporting quarters in the history of the electronics industry. Amidst the volumes of negativity, there are pockets of resistance to this negative spiral of events, and in the best interest of my readers, I intend to identify them in this article.

Summary Table: Areas of Positive Business Activity: 1H 2009 as Noted by the Vendors

Source: Company Reports, Compiled by Paumanok Publications, Inc

The above chart is the result of a survey of the top 18 passive electronic component companies who report financial results. Only 7 companies reported any signs of growth and we have aggregated them in the above table. All the other companies reported negative growth information and continued negative growth forecasts and we have excluded them for the purposes of this article, which is to identify patterns among vendors.

Regionally in the first half of 2009 it appears that there had been positive activity in China related to their economic bail-out plan and its impact on new installations of wireless base stations. These critical hubs in the wireless network employ high frequency capacitors that are not readily available from all MLCC manufacturers. Therefore we note that both AVX and Kemet noted that this was a positive area of growth in an otherwise down business environment.

Also in China and other parts of SE Asia we note an increase in demand activity coming from the wireless handset sector, especially among MLCC manufacturers such as Samsung, AVX and Murata. AVX further noted that they were seeing demand from the extremely high end phone market and from the extremely low-end phone market, but that the mass mid-segment of the handset business had lost volume.

In the computer space, AVX reported increased sales activity in the netbook and notebook computer markets and expected increased activity in the hard disc drive segment in the June quarter. Samsung also reported increased sales activity to the semiconductor microprocessor industry.

Additional information reported by the top passive component manufacturers also indicated that the minor markets defense and medical, continued to outperform, and were stable quarter to quarter or up slightly. In the automotive sector, all vendors reported substantial declines, with German passive component sales to the automotive sector off about 50% year-over-year, according to EPCOS; but AVX also reported they had seen increased sales activities at Volkswagen in Germany, which was counterintuitive to the reporting of other vendors.

With respect to product line, the one area of keen interest is in power film capacitors, which seem to be somewhat insulated from the global economic downturn and is either growing in demand at certain manufacturers or outperforming most other products in the portfolio. EPCOS, for example, reported increased sales activities for power film capacitor sales to the large home appliance market in China. Government incentives for greater power efficiency in home appliances is encouraging growth. Nichicon Corporation and Nippon Chemi-Con Corporation also noted that their power film capacitor lines were also outperforming other products in their respective capacitor portfolios. Kemet also noted they were considering the construction of a new plant in the United States that would produce power film capacitors for renewable energy systems. The decision to move forward on this plant will be dependent upon federal government funding for the project.

Resources:

AVX Corporation:

AVX Corporation reported in April 23, 2009 that demand for passive components was improving but end-market demand remained difficult. The company reported continued strong growth in sales to China’s telecommunications infrastructure market, as they had previously reported in the quarter ending December 2008. The company also noted improving market conditions in net-book and notebook computers, although this did not take hold until mid-April 2009. The company expected increased orders from the hard disc drive storage market impacting the June quarter in a positive manner. Month over month the company saw improvements in the European market, including the depressed automotive sector.

The company noted that while consumer markets declined that their defense and medical markets held up quite nicely year over year and now represent 17% of their total sales for FY 2009 as opposed to 13% just last year.

In wireless handsets, which account for a substantial portion of global ceramic chip capacitor sales, demand remains good in 2009 for extremely high-end phones (in the West) and extremely low-end phones (in China), with the bulk mass merchandise phones (worldwide) in the mid-range suffering the greatest downturn and having the largest impact on MLCC sales. The company also reported an increase in demand for large home appliances in the Chinese market due to government incentives since mid-February.

The company noted that the automotive sector remained the weakest over the past two quarters (September 2008 to April 2009), although they had seen increased demand in smaller models, and regionally the strength remains in Asia, and in some European production also due to local European incentive programs for new car buyers.

The Advanced Products Group (which includes value-added and application specific ceramic and tantalum capacitors) increased its overall market position in the company to 36% of overall sales in the March 2009 quarter.

In the March 2009 quarter customers ordered only what they needed, according to the company. Distribution customers saw good demand and throughput during the quarter as well. 33% of sales were to electronic component distributors in the March 2009 quarter. The company expects more distribution channel replenishment in the June 2009 quarter.

The company believes the March quarter represented the lowest point in the current negative economic climate.

The growth in June will come from Asia. The company is already seeing growth in the April quarter in Asia. In China the demand is coming from the 3G roll-out there and they are having trouble meeting delivery schedules. The ATC product line and the thin film product line in Israel are the two AVX beneficiaries of the Chinese infrastructure upgrade for their wireless infrastructure. The company also noted strength in the low-end handset business in China. Demand for game consoles was also better then expected, especially for the X-Box.

The company further noted that they were doing well at Volkswagen in Europe.

EPCOS AG:

EPCOS AG noted by contrast, sales of components for consumer electronics applications rose by more than 10 percent on a quarter-to-quarter basis. The reason for this increase is that the Chinese joint venture EPCOS Feida (Anhui Feida Industry Stock Co., Ltd.) went into operation in the quarter under review. EPCOS Feida develops and manufactures power capacitors primarily for use in home appliances. The home appliance industry in China is growing due to government incentives for power efficiency especially for large home appliances such as refrigerators and air conditioners. Both of these large home appliances employ large can power film capacitors for power factor correction during “motor run” operation.

Kemet Electronics:

Kemet noted that sales in China were improving and the roll-out of 3G infrastructure in China was driving demand. The company also noted that the American market had bottomed out and would begin to grow in the coming quarters, but that further declines in Europe were expected. Kemet also noted they would build a capacitor plant in the United States if they received federal aid to do so under the American Reinvestment and Recovery Act of 2009. Kemet produces power factor correction capacitors in Europe, and would like to do so in the USA to support federal incentives to move toward a greater reliance on renewable energy.

Murata Manufacturing Company:

Murata noted that the monthly volume of new MLCC orders bottomed out in December 2008 and has been rising each month since January, with orders in March rising substantially month-to-month (driven mainly by cell phone relatedcomponent and subassembly demand). The company noted that orders with short delivery lead-times are increasing because customers, faced with economic uncertainty, are waiting as long as possible before placing orders.

Nichicon:

Nichicon noted that their Power Film Capacitor business (11.6% of sales) remains stable due to the movement toward power efficiency in power electronics. Motor run capacitors and pulsed power capacitors remain a solid business for the company in the wake of the downturn in digital electronics, most notably flat panel display television and computer motherboards. In December of 2008 Nichicon agreed to acquire the conductive polymer capacitor line from Fujitsu Media Devices, specifically from Towa Electron, a Fujitsu subsidiary (for an estimated 5.6 billion yen). The sales of this product line were an estimated 4.9 billion yen (ASP is 7.5 to 8.0 yen per unit). The plan is to integrate the Towa line into the existing conductive polymer aluminum line of Nichicon to increase share in the fast growing conductive polymer aluminum capacitor business.

Nippon Chemi-Con:

Nippon Chemi-Con noted that operating margins dropped due to higher costs and price concessions on conductive polymer capacitors. The core aluminum capacitor business has been most severely impacted by the global downturn. However, sales of solid polymer aluminum capacitors, even though they are down YOY, are not as hard hit as other product lines. The power capacitor line produced by the company is also down, but not as bad off as the bulk radial leaded and SMT V chip aluminum sales.

Samsung Electro-Mechanical:

Samsung Electro-Mechanical noted that in March 2009 they saw an uptick in orders from the wireless handset business and the LCD display business segments. March utilization rates in the MLCC business improved substantially from January and February coming from the wireless handset business and from the computer microprocessor business.

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