Passive Component Sales by World Region: FY 2011 Outlook

03.08.2010 // Posted by: Dennis Zogbi // Posted in: Articles, Passives

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How the landscape for capacitor, resistor and discrete inductor sales is changing as a result of the global economic downturn.

Introduction:

Worldwide market growth in the December 2009 and March 2010 quarters for the global passive components industry indicate an unusual and lopsided recovery. Growth rates for many of the top passive component manufacturers are not uniform as would be expected, but rather widely disparate, leaving many in the industry scratching their heads as to what the fastest growth companies had in common- which seems to be very little indeed.

Examples of a Disparate Growth Trend in the Industry

For example- Kemet, Vishay, KOA and Littelfuse had growth rates in the December 2009 quarter that were in double digits on a sequential basis, while the historical high growth performers- SEMCO, Murata, TDK, Yageo and TOKO had low single digit growth rates, or no quarterly growth rates at all. And companies who usually track other’s performance, such as AVX and Nichicon had lower growth rates then we at Paumanok Publications, Inc. expected.

There are no easy answers here, but the results are most certainly multiple factors which many companies in the industry, small and large, are trying desperately to understand in March of 2010. What’s more is that guidance for the 2011 FY are equally unusual and lopsided, which means that those that performed well in the December quarter will continue to do so in the March quarter, and those that performed poorly in the December quarter will likewise continue to perform poorly.

Regional Exposure - A Significant Factor:

Regional exposure here is critical to understanding the current market conditions. The Japanese economy is not improving in line with the other world economies, and exposure to the Japanese home market has certainly impacted the sales of the major Japanese passive component vendors in a negative way. Companies with greater exposure to the American and European markets are experiencing greater sequential growth, because the markets for passive components fell so far and so quickly in the December 2008 and March 2009 quarters that recovery is equally as compelling on a sequential basis one year later.

Additional Factors Playing a Key Role as Well, But Also Tied to World Regions:

Also the negative yen to dollar ratio has also hurt Japanese vendors; and during the year many major Japanese passive component vendors pledged to move more production away from Japan to non-yen based regions of the world. Also, during the 2009 calendar year, the favored currency to be buying components in was the Korean Won, which gave Samsung EMCO a tremendous boost in sales as they wrestled market share away from Japanese and Chinese vendors of MLCC. Another interesting factor is that had Samsung EMCO of Korea not reached operational capacity in their MLCC line in the December quarter, there may have been no growth at all at Murata and TDK (which most certainly received orders that were originally destined for the Korean electronics giant who could not fill them because they had sold out, especially for high capacitance MLCC between 2.2 and 100 microfarad). One other interesting factor we noted at Paumanok Publications, Inc. for our latest study entitled “Passive Components: World Market Outlook: 2010-2015” was that the high growth companies in the December 2009 quarter- Kemet, Vishay, KOA and Littelfuse have high exposure rates to the automotive markets outside of Japan. Since the automotive sector was the hardest hit end-use market segment in the 2008-2009 time period; and make up such a large and important portion of the American and European regional electronics markets; the recovery of these markets are creating sequential growth increases for those passive component companies that are exposed to the automotive sector.

Distributors Also Playing a Key Role Now: Also Regionally Significant

Also, Kemet, Vishay, KOA and Littelfuse also have a high percentage of sales by channel through distribution, and these high growth companies for the quarter did indicate in their respective quarterly conference calls that there was a restocking trend going on at the major passive component distributors. Regionally, the US has a very high exposure rate to distributors as a channel for passive component sales.

Regional Market Assessment:

In 2009 (FY ending March), approximately 76% of global passive component consumption is in Asia with emphasis upon China, Japan, Singapore, Korea, Malaysia, Philippines, Vietnam, India and Thailand. The economic downturn of 2008/2009 placed a greater emphasis upon Asia (specifically China) as it was somewhat insulated from the downturn. The BRIC (Brazil, Russia, India and China) countries each hold promise as growth areas again for passive components, but only after the current economic downturn subsides. The American and European markets were hard hit by the downturn, but we can see that sequentially in the June, September, December 2009 and March 2010 quarters that these regions have begun to recover. In The March 2010 quarter we can see that from a global perspective that Japan’s recovery has been muted, and delayed, and therefore, vendors with great exposure to the Japanese market have continued to struggle. Furthermore, the idling of Toyota will have a lasting affect on the Japanese home market for the 2011 fiscal year.

The footprint for consumption of passive components in NAFTA will continue to shrink over time, but will have higher profit margins because the mix of components consumed in those regions will become application specific and value-added for the computer, automotive, industrial, medical, telecom infrastructure, mining, oil well and defense industries. In CY 2009 we began to see the affects of this as major raw material vendors pulled their operations from the United States and relocated them elsewhere- Cabot Corporation, for example, relocated their production of advanced tantalum powders for anode to Japan (and stopped production of advanced dielectric powders in Pennsylvania), and Ferro Corporation stopped research and development of advanced ceramic dielectric materials in New York and consolidated them in Holland. Other signs of a breakdown in the American supply chain include GE’s idling of their polypropylene tenter film process in Ft. Edward New York in favor of materials from India.

The Americas have shrunk by about half its size in terms of consumption value since 2001 FY ending March; with that value transferred mostly to China. In 2009 the Americas continue to be dominated by consumption of passive components for computer applications, followed by automotive, power, defense, lighting, medical and oilwell services industries. In 2009, the automotive market for passive components was rocked by factory work stoppages at the car company’s and buying freezes. This placed an already shrinking market into difficult straights for those company who serve the sector and justify USA production of passives for the automotive industry because of proximity to the customer. The current economic crisis in the automotive sector put the USA passive component manufacturers in difficult times for FY 2010.

In 2010, the Americas, with emphasis upon the USA, Mexico, Brazil and Canada, consumed 11% of the world’s passive components in terms of value-down from 13% in Fy 2008; while Europe, with emphasis upon Germany, the UK, France, Italy, Finland, Sweden, Spain, and Hungary consumed 13% of the global capacitor supply in terms of value in 2010- and experienced a sharp drop in consumption compared to 2008 when it consumed 17% of the world supply (This was due to the sharp drop in the automotive sector and wireless sector, which make up a substantial portion of European passive component consumption- ( SUMMARY GRAPH 1: Passive Electronic Component Consumption Value By World Region: 2010 Year Ending March 31 2010 See Summary Graph 1)

Europe continues to be a viable growth market for applications in wireless handsets, automotive electronics, power and lighting over time, but in FY 2009 and FY 2010 we note that both the handset business and the automotive business in Europe hit hard times beginning in November and lasting through to February 2010. The large European production of both wireless handsets and automotive electronic subassemblies enable a stable growth platform that the Americas do not share over time to 2014, but in the short term we see no area of the European market, other then defense and medical electronics that is not affected by the downturn in 2009. According to the largest European manufacturer of passive components- the European practice is that when troubling economic times loom, it is typical for the European supply chain to tighten up more rapidly when compared to the rest of the world, and this is what happened to the European market in 2009.

2011 Regional Outlook:

For the 2011 fiscal year (April 1, 2010 to March 31 2011), we expect growth in all world regions and countries except for Japan, which we expect will continue to decline on a year-over-year basis as more companies in the Japanese electronic supply chain move production to non-yen based manufacturing in the Asian region outside of Japan (probably China, Thailand, Philippines, Korea and Vietnam).

We expect that for FY 2011 that the market for passive components in the Americas will grow by 16% year-over-year; the market in Europe will grow by 15% year-over-year and the market in SE Asia (all countries combined) will grow by 5% year-over-year, with higher growth rates anticipated for China. The double-digit growth rates in Europe and the Americas are justified by the fact that these regions are recovering from a large decline in sales, and therefore, higher growth rates are anticipated as these markets as they begin their long return to normalcy (See Summary Table and Graph 2)

SUMMARY GRAPH 1:

Passive Electronic Component Consumption Value By World Region: 2010 Year Ending March 31, 2010

Graph Note: The majority of passive component consumption continues to be in the Far East. The Far East will continue to be a growth region to 2015 and beyond. China, Taiwan and Korea will be the major areas of continued growth for handset, TV set and computer.

The Reader Needs To Know…Asia traditionally has been the largest market for capacitors, but since 2000 the Asian markets, with emphasis upon China, have grown at the expense of consumption in the Americas and Europe. This trend will continue.

SUMMARY Table and Graph 2:

Passive Electronic Component Consumption Value By World Region: 2007-2010; 2011 Forecast

(In Millions of USD)

Graph and Table Notes:Please note- no region was spared from the economic downturn of FY 2009.

Source: Paumanok Publications, Inc.

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