Letter to Our Customers
April 11, 2018
Dear Valued Customer,
As you are likely aware, there is a worldwide shortage of commonly used multi-layer ceramic chip capacitors (MLCC). As a global distributor of the leading capacitor brands, TTI is close to the situation and we offer the following perspective, assurance where possible and suggestions for the future.
There are a number of contributors to the shortage and we believe once you understand the scenario you will likely agree with our team of specialists that the conditions of this market are different than historical shortages and allocations of components – the most critical difference being that this time of constraint will last longer.
The underlying cause is economic and largely pertains to case size 0402 and up, both low and high CVs, though case size 0201 in some values are included.
Large case size components have been subject to cost-down pressure for so long that meaningful profit for the manufacturer has been squeezed out. Statistical evidence proves that since the market recovery after the 2007-08 recession the production of MLCCs doubled but the value of the market remained flat, that is until last year when market value increased only slightly over units. We have reached a point that some manufacturers are concentrating their future activity on smaller case sizes and less commoditized technologies of the market like high voltage and flexible termination, with a particular focus on high-reliability end-markets such as automotive and medical. So while manufacturers are adding capacity, it’s generally not for commercial commodity parts – making this market condition even more difficult to navigate.
This is not to say that there is no incremental capacity in the works. As pricing reacts to increased demand some capacity is being added for commercial parts but the turnaround time is longer than normal. One holdup is the availability of new equipment that comes from a small group of equipment makers whose backlogs have also grown with the economy.
In early 2017 our product specialists began preparing for this market by aggressively expanding our inventory position on MLCCs with the goal of shielding our customers from expanding lead times and price increases. To further ensure we could support existing customers, we decided to decline orders from new customers for constrained and allocated parts (this situation extends to other dielectrics, resistors, inductors and power semis) – our team intuited that this situation could extend well into 2018.
Now that we are in 2018 conditions are even worse than we anticipated – our product allocation from suppliers has been based on previous year’s consumption so even with our decision to reserve our inventory for existing customers, we will not have enough to cover the increases you are experiencing in your businesses. It is not unusual right now to see true demand increases (not artificial as a result of hedging) from customers of 30% or more year on year. The supply chain is further complicated by the fact that there are a number of buy-resell agreements among MLCC manufacturers and we are already seeing unexpected shortages as a result. As these come into play there may be circumstances where we will be forced to advise our customers that the product is simply not available and the only recourse is to identify and
approve an alternate component.
So what are we doing?
At TTI we are actively determining when we will lose inventory coverage, customer by customer, part by part, so that we can give each of our existing customers as much notice as possible. At the same time, we are presenting each customer options in the form of alternate suppliers, alternate part numbers that are perhaps higher performing but still drop-in replacements, and even alternate technologies. During the tantalum shortages in the early 2000s, many customers switched to MLCCs. Reversing that could provide near-term relief, especially as it pertains to polymer capacitors as a backup for some high CV ceramics.
The most important thing you can do is evaluate alternate part types and suppliers for both low and high CV MLCCs.
We understand the time and cost related to this effort, especially on existing products, but we urge you to begin as it may be your only path to ensuring your production lines continue to run.
The intent of this letter is not to cause panic but rather to increase awareness. TTI is as well or better positioned as any in the industry to support you through these shortages and as a supply chain customer of TTI, you will always be our priority. Our intent is to minimize the impact that any of these parts that we supply may have on you and we believe that starts with information and communication.
Known Constrained MLCC Parts and Suppliers
AVX:
Commercial and Automotive ceramic capacitors
Select values in 0201 through 1812 case sizes
Low CV and High CV in X5R, X7R, X7S and Y5V dielectrics
KEMET:
Commercial, Flexible Termination and Automotive ceramic capacitors
Series Cxxxx, select values in 0201 through 2220 case sizes
Low CV, High CV and High Voltage, all dielectrics
Murata:
GR* and ZR* Series Monolithic Ceramic Capacitors
Select values in 0402, 0603, 0805 and 1206 and up case sizes
R, X5R, X7R, X7S and X6S dielectrics
Capacitance values ≥1uF and voltage less than 100V
Commercial and Automotive ceramic capacitors
GC*, GRM and ZR series
Select values in 0201 – 1825 case sizes
Low CV and High CV all dielectrics
TDK:
Commercial and Automotive Ceramic Capacitors
Series Cxxxx and CGA
Select values in 0201 – 2220 case sizes
Low CV and High CV in all dielectrics
Yageo:
Commercial Ceramic Capacitors
Series CCxxxx
Select values in 0201 – 2220 case sizes
Low CV and High CV in C0G, X5R, X7R and Y5V dielectrics
SUMMARY OF CAUSE
Dramatically Increased Electronic Content
There has been an electrification surge building for the past few years as more electronic functionality is added to many devices. The automotive industry in particular is a prime example with the electronic content in new cars growing +10% per year. Advanced driver assist, backup cameras, infotainment, self-driving and a general move toward all-electric drive will dramatically amplify that trend in the near term. Smart phones and ultra-high definition televisions and displays use a dramatically increasing number of MLCCs.
Simultaneous Demand Increase Across Market Segments of the Electronics Industry
This is an unusual time in the electronics distribution industry as we are seeing growth in most segments of the market – automotive, industrial, military-aerospace, and telecom. Demand for many components, not just MLCC, has quickly soaked up much or all of the unused component manufacturing capacity.
Suppliers’ Reluctance to Add Capacity
The usage of chip resistors and MLCC capacitors has increased every year while resales have dropped at the same or faster rate. Most manufacturers are adding capacity but are focusing this capacity on segments with reasonable returns which means they are not focused on the commercial, general use segments. The economics of the market do not support the level of capacity investment that the market is accustomed to relative to commodity MLCC products. In the past, the supply base has always overshot demand with their capacity additions, perpetuating a strong buyers’ market and on-going piece price deflation. As a result, suppliers are adding capacity in a more measured, balanced way. Capacity is being added now in a closer alignment with demand (growing 12%-15% per year and the industry capacity going up 10%-25% per year). It is just not enough to close the gap that has been created over the last 12 to 18 months and it could take a couple of years to level out.
Suppliers’ Decisions to Cease Production
Some suppliers have chosen to exit some of the legacy commodity products completely and shift that capacity to smaller, more economical case sizes. Most notable of these are leading Japanese chip capacitor and resistor manufacturers.
Implementation of Product Allocation and Limiting of New Orders
TTI is being allowed to purchase in levels equivalent to our 2016, and in some cases our 2017 order volumes. As many of our customers are seeing growth in their business, we are finding that even with our aggressive and early buying, we will not be able to handle all upside business and in many cases, we regret that we will not be able to accept even existing customer orders for quantities greater than their historical usage.
Increasing Manufacturing Capacity
Unlike past cycles, the suppliers have been conservative in adding new capacity for many of the highly constrained parts. Many have started the execution of plans to increase capacity but the increases range from 10% to 30%. We do not believe that even at the 30% increase that there will be enough parts to satisfy all of the demand. There are also extended lead times (2X) on the manufacturing equipment required for new capacity as the equipment suppliers are both limited and oversold. We do not expect to see any meaningful new capacity in the market until very late this year into early 2019, and the balance of what is coming may not materialize until the end of 2019.
Increasing Distributor Buy Prices
As communicated earlier, many of these parts are unprofitable for the suppliers. In order to justify the capital investments and restore profitability, some of these suppliers have been increasing prices on new business, and some are even now beginning to reprice existing business and open backlog, especially for parts that are not tied to a specific customer contract. We expect that the price increases will continue until some balance is achieved between supply and demand, which will come in part from some increase in supply, and in part from decrease in demand (as customers move to other technologies and case sizes).
Expiring Special Costs
Recently, many of TTI’s suppliers have stopped supporting our volume-based, negotiated special buy costs on commodity parts from the previous years. This is starting to impact existing orders and purchase agreements with customers. We will buffer these with inventory acquired in the past at then negotiated prices, but please know that this is short term and our price on replacement inventory is higher.
Increased Inventory and On-order Levels
In mid-2016, the TTI Product Team detected the potential for future product shortages in chip resistors and ceramic chip capacitors. They began increasing buying volumes on those suppliers that would accept the increases, and began actively buying alternate suppliers for whom customer interest and demand had been historically low. This drove a noticeable inventory build starting early in 2017 with on-hand inventory growing 18% by the end of the year, and on-order growing twice that. As the situation evolved and worsened, we began to see a growing incident of significant and chronic supplier reschedules that by the end of the year had many of these parts on full allocation. While TTI identified the issue early and reacted, the suppliers started to cancel many of the orders that were originally accepted before the allocation processes were activated. We are constantly reevaluating our on-hand and on-order inventory relative to the latest lead times and customer demand signals in order to find the pain points before they develop.
Placed Constrained Parts on Allocation and Stopped Accepting New Customers
TTI has processes in place to ensure that our inventory of constrained parts is fairly divided amongst our customers based on historical usage, and that incoming inventory is likewise allocated fairly. In early 2017, TTI stopped accepting orders from newly arriving customers attempting to access existing inventory and/or hedge their future requirements by placing parts on order with multiple distributors, including TTI. TTI’s business and reputation is built on supporting the customers who have supported us. We are in this for long term growth and partnership, not short term gain.
Expand the Part Numbers and Suppliers on your Approved Vendor List (AVL)
Often times there are many different part numbers that will meet your needs, but in the interest of time, only one has been selected and added to an AVL. The difference could be related to the packaging of the part (e.g. 4K per reel of parts versus 10K), or a tolerance (e.g. a low tolerance was spec’d in for cost reasons but a higher tolerance part, which is better, is a drop-in replacement). And likewise, the part may be available for multiple manufacturers but, for cost and time reasons, only one was approved at the time the bill of material was created. In these situations, we have countless examples where we have been able to show a customer options and kept supply flowing, though admittedly often at a different price than the original, no longer available, part was promised.
Consider Other Technologies
Tantalum or Polymer are alternatives for MLCC capacitors and should be actively evaluated now. There will not be enough MLCC capacitors produced to support market demand over the next couple of years. Globally, shortages are expected to be in the hundreds of millions (pieces).
PLEASE DO NOT Artificially Inflate your Requirements on TTI
You may think that doubling the size of your orders will help you get more product. This is not the case as we are running our own internal product allocation process, as noted earlier. It adds to work load, sets false expectations for all involved, and further spooks a supply chain that has suffered large losses as a result of excess inventory on the backside of these cycles. As stated above, TTI is receiving allocation based upon the shipments we received in 2016 and/or 2017. TTI is then allocating to you and other customers based on your previous purchases from TTI. No orders that you placed direct or with other distributors will be considered in TTI’s allocation process for obvious reasons, nor are they likely to be supported by the manufacturer.
Letter to Our Customers - Supply Chain Migration
September 18, 2018
RE: Allocation and End of Life (EOL) of select MLCC Product Manufactured by AVX, Murata, TDK, Yageo
Dear Valued Customer,
The current market conditions for MLCC product, both in terms of increased demand and the on-going effects of allocation and EOL, have made the responsibility of assuring supply for our customers increasingly complex – a responsibility that is the cornerstone our company was built upon and fundamental to the TTI mission.
The goal of this initiative is to guarantee that our customers have access to these critical components to meet your manufacturing needs. In order to assure proper supply chain management of select AVX, Murata, TDK, and Yageo MLCCs that are either allocated or EOL, we will be removing these products from MRP programs (forecast sharing / VMI / consignment /Talon) and migrating them into individual customer bonded inventory accounts. TTI will communicate the part numbers, quantity available and available delivery dates to each, specific buying location no later than September 20, 2018. TTI will require a hard/firm purchase order no later than September 28, 2018 in order to initiate a bond agreement – the quantity of which cannot exceed 1/2 of the annualized allocation provided in the spreadsheet. Once the bond account has been established on a monthly basis, you may release as much as 25% of this inventory with a single release until the bond quantity is consumed. On March 29, 2019 remaining inventory will be made available to all TTI customers. In EOL scenarios, please ensure your engineering teams are working with the TTI product and sales teams to identify commercially viable MLCCs for your manufacturing requirements beyond this 6-month period.
While TTI would prefer to not take these steps, we find it necessary in order to protect your ongoing supply as much as possible. We will continue to communicate with you throughout this critical allocation situation.
Thank you for business and your partnership,
Jeff Ray signature
Jeff Ray, Vice President, TTI Americas
Product & Supplier Marketing
Passives and Discrete Semiconductors
EOL & Allocated Product Timeline:
09.20.2018 TTI will communicate part numbers affected and available delivery dates
09.28.2018 Firm purchase order received by TTI to initiate 6-month bond agreement
03.29.2019 Remaining EOL and select allocated inventory will be made available to the general public
Letter to Our Customers - Market Update
July 17, 2019
RE: Multi-Layer Chip Capacitor Market Update
Dear Valued Customer,
Whether subtle or stated manufacturers of multi-layer chip capacitors (MLCC) have begun to focus their current capacity and future product roadmaps toward certain vertical markets, case sizes and capacitance ranges, it is critical to understand these paths as they may be in conflict with your procurement strategy. TTI is the world leader in the distribution of MLCCs and has aligned with the leading manufacturers to provide our customers with a safe passage through the turbulent MLCC market.
Complexity in the MLCC Market
While a MLCC is considered a lower technology electronic component, they are critical to the end product of today’s electronic industry and are full of complexities that can make their sourcing ever more complicated. Simply stated, MLCCs are not a one size fits all component. To communicate the potentially problematic areas within the world of MLCCs, I will break down the market into groups based on capacitance value (CV), case size and grade. For the purposes of this communication, capacitance value will be defined as Low CV and High CV. Low CV are MLCCs with a value of <1μF and High CV are MLCCs that are 1μF or greater. Case sizes can range from 008004 to 4020, but in North America the more prevalent case sizes are from 0201 to 1210. Small case size MLCCs will be 0603 and smaller and large case MLCCs will be 0805 and greater. There are two fundamental grades of MLCCs, commercial and specialty. Commercial MLCCs are standard MLCCs while specialty MLCCs have automotive rated and/or flexible termination MLCCs that resist cracking in applications with shock and vibration.
Low CV, Small Case Size, Commercial Grade MLCC Mostly Available
From a sourcing perspective, if your bill of materials calls for Low CV, small case size, commercial grade MLCCs, the market is fairly available to you right now. Due to recent softness in the Asia based consumer market and End-of-Life (EOL) production runs, there is an abundance of this type of MLCC in the market today. However, the demand for these components will pick up in the back half of 2019 and increase in 2020 as the global market strengthens. Somewhat problematic areas within the Low CV MLCC sphere are specialty grade small case size and commercial grade large case size MLCCs. While the lead times of 12-16 weeks for MLCCs in these categories may seem to indicate a level of market normalcy, availability continues to be constrained and I recommend you verify the delivery dates of your orders for these components.
Challenges persist in large case size (0805-1210), specialty grade, Low CV MLCCs. For years MLCC manufacturers have experienced a very low ROI in Low CV MLCC and, given the volumetric consumption of ceramic material used being directly proportional to the size of the MLCC, adding capacity for these products is less attractive for manufacturers. With the increased difficulties of producing specialty grade MLCCs, availability will remain tight for the foreseeable future. Currently lead times range from 22-45 weeks.
High CV, Large Case Size, Commercial and Specialty Grade MLCC Still Constrained
In the area of High CV MLCCs, the market is somewhat similar to the Low CV market with noted exceptions. Given the higher CV rating, case sizes tend to be larger and not all manufacturers have the technological capability to produce High CV MLCCs in both high volume and, more importantly, with high quality. Therefore, the manufacturing base for High CV MLCCs is more narrow, particularly in the specialty MLCC category. Small case size (0201-0603) commercial and specialty grade High CV MLCCs as well as large case size (0603-1210) are comparatively available today with lead times of 18 – 35 weeks. However, as previously mentioned with Low CV MLCCs, this availability due to a softer Asian consumer market, will not continue throughout the back half of 2019 and will get tighter in 2020. The most problematic area in the current market remains large case size (0603- 1210) specialty grade High CV MLCCs. Out of the tens of thousands of parts within this category roughly 80 part numbers are still constrained to allocated. This is an area where the manufacturing base is most limited especially for MLCCs with CV ratings above 10μF. Overall lead times for this category range from 24-45 weeks.
End Market Demands Greater than Current Capacity
Clearly the end customer demands and subsequent application requirements for High CV specialty grade MLCCs is moving faster than manufacturers can produce product. Many MLCC manufacturers are adding capacity and upgrading their capabilities to compete in this area but some are at least one manufacturing generation behind, which means it could be two to five years before reliable production quantities are available. Customers may have some flexibility on case sizes based on the pad layout in their design, but migrating from large case size MLCCs to smaller case sizes can be a difficult, expensive and a time consuming process. For customers in the transportation, medical and military markets, there can be additional issues because product life cycles can be very long and the qualification processes are lengthy.
High Tech Market Growth will Cause Future Constraints
As MLCCs appear to be more readily available than early 2018, one could assume there is norisk to the supply chain; however, the MLCC market is “in the eye of the storm.” With the wave of EOL products no longer being produced and high consumption applications in vehicles, mobile phones, IoT, 5G, and data centers increasingly coming on line, the MLCC market will tighten up making an assured supply strategy with TTI as critical as ever.
Thank you for business and your partnership,
Jeff Ray, Vice President, TTI Americas
Product & Supplier Marketing
Passives and Discrete Semiconductors
Letter to Our Customers - November Update
November 6, 2020
Dear Valued Customer,
After a prolonged lull during 2019 and most of 2020, the supply of MLCCs is beginning to tighten up again. This is resulting in extending lead times across many case sizes and suppliers in both commercial-grade and automotive-grade components.
There are several factors causing this tightening of supply, including increased demand from the communications and transportation sectors; depleted global inventories; and supply chain challenges due to increasing manufacturing facility absenteeism and increased transit times. Expect the MLCC market to intensify consistently throughout 2021.
Increased demand from the communications and transportation sectors is generally attributable to advancements in 5G infrastructure and cellular handsets in Asia, and to a lesser degree the global automotive market’s move toward the electrification of drive trains along with more robust safety and infotainment applications. The communications sector is a large consumer of small case size MLCCs (≤ 0402) in both commercial and automotive grades.
Many of the remaining factors can be attributed to supply chain issues. 2020 has been a year of adjustment in the global supply of MLCCs, with customers, distributors, and manufacturers alike correcting their inventory levels – maybe even overcorrecting in some cases. The lower-than-market demand for MLCC inventory has left some customers’ supply chains exposed to the recent uptick in the communications and transportation markets. This combination of increased demand and the recent developments of increased absenteeism at factories have placed a strain on MLCC supply chains. As distributors and customers shift into catch-up mode, the increase in demand will foster further MLCC lead-time extensions. The aforementioned capacity limitations may seem to be in conflict with the well-documented MLCC manufacturing capacity increases which occurred in 2019. While it’s true that most MLCC suppliers increased capacity through expanded factories and the addition of manufacturing equipment, an unfortunate result of the soft 2019 and 1H 2020 MLCC market is that many of these manufacturers reduced their workforces. The re-staffing of trained MLCC production operators and inspectors has remained a challenge.
Here is what we see developing in the market at this time:
- Current market conditions see small case size (≤ 0402) low-CV commercial-grade MLCCs being available, with few exceptions by type or manufacturer.
- Small case (0201 and 0402) low-CV and high-CV automotive-grade MLCCs are less stable: lead times are extending by 8 to 10 weeks into the 24-week range.
- Large case (≥ 0603) high-CV automotive-grade MLCC lead times have remained extended throughout 2020 and are currently in the 20- to 24-week range.
- Large case (≥ 0603) low-CV commercial-grade MLCC lead times are also extended, typically in the 17-22 week range. However, note that the lead-times for 1206-2220 case size components (which are on the upper end of the large-case MLCC portfolio) have remained extended throughout 2020 as less additive capacity has come online to address this market demand. Lead times remain in the 20-24 week range for both low-CV and high-CV commercial and automotive grade components.
As the market leader in MLCC distribution, TTI remains committed to providing communication of today's evolving market conditions in order to enable our customers to make the best supply chain decisions possible.
Jeff Ray
VP, Product and Supplier Marketing
Passives and Discrete Semiconductors