Introduction and Reason for this MarketEYE Article at this Time

The 2018 shortage of capacitors and resistors reminds me of a similar event back in 2000, when the only variable was how high prices could go and how much value could be collected from the market before the inevitable shift back toward supply parity. While others view the current dramatic upcycle in passive components as a combination of other prior historical economic models; I am finding an uncanny, almost day-to-day parity with the famous 2000 cycle. However, what is also becoming more apparent is that companies in this supply chain who have experienced this type of upcycle (which some in the financial community are calling the most significant bubble ever to transpire in the high-tech economy) are approaching the market with greater confidence than ever before because passive components have big data sets that reveal the cycle of what should happen next, because it happened like this once before. Therefore, the only true mathematical variable for investment in this supply chain, as manufacturer, distributor, vendor or financial institution, is to suggest just how prices might go before the pattern changes yet again. This article is designed to serve as a template for the new investor who is interested in the mechanism of the market for passive electronic components, and how a “paperclip” type part is so difficult to produce.

The Passive Electronic Component Market for New Investors

Paumanok Publications, Inc. has diligently collected market data on Passive Electronic Components, which we define as Fixed Capacitors (C ), Fixed Resistors (R ) and Fixed Inductors (L) over the past 30 years. These components include:

  • Ceramic Capacitors (MLCC- Now in Short Supply)
  • Tantalum Capacitors (Now in Short Supply)
  • Aluminum Electrolytic Capacitors (Some Parts in Short Supply)
  • Paper & Plastic Capacitors (Some Parts in Short Supply)
  • Thick and Thin Film Chip Resistors (Now in Short Supply)
  • Arrays, Networks and Integrated Passive Devices (Some Parts in Short Supply)
  • Wirewound Resistors
  • Nichrome Film Resistors
  • Tin-Oxide Resistors
  • Bulk Metal Foil Resistors
  • Carbon Film and Composition Resistors
  • Ferrite Beads 
  • Ferrite Bead Array
  • Multilayered Chip Coil
  • Molded Case Wirewound Chip
  • SMD Molded Wirewound Coil
  • Axial Leaded Wirewound Inductor
  • Radial Leaded Wirewound Inductor
  • Wirewound Bobbin
  • Ferrite Cores  

In FY 2019 many of these key components, especially the bulk ones, the one’s that represent the fabric of the high-tech economy because of their use in all electronic and line voltage devices built in the world today (yep, that’s right, all of them) are experiencing unprecedented value growth worldwide, with some vendors reporting year-on-year growth in April 2018 sales of +100% In US Dollars Year-On-Year compared to the same month in 2017.

The reason why this market has increased substantially in value in FY 2018 and is expected to continue its heavy growth pattern in DFY 2019 due to a dramatic upward shift in demand, which has manifested itself in demand for capacitors, especially solid capacitors, with emphasis upon the MLCC and the molded tantalum chip capacitors; however, and moreover, even plastic film capacitors and aluminum electrolytic capacitors also enjoyed growth rates in the double-digit range year-on-year marking the FY 2018 as a banner year in this “feast or famine” business. Fixed resistors, especially thick and thin film chips, also experienced a double-digit rate of worldwide value growth in FY 2018.

Magnetic component markets also grew but at a much slower rate than that of capacitors and resistors. First quarter CY Data (March 2018) illustrates that demand is stillhigh and our forecast is that demand will remain tight for the FY 2019 year as well.

Passive Component Research Methodology

The Paumanok methodology employed to research passive components been built up over the past 30 years and is based upon an advanced mosaic theory that was developed by Paumanok founder Dennis Zogbi and “bolted together” over the years through deep dive technical and economic research with a myopic focus on passive components, and the biggest spokes, with the longest “big data” history in MLCC Tantalum chips and Thick Film Chip Resistors (the very bulk components that are in short supply today) and is unique and focused specifically on the mass production of electronic components and the raw materials consumed in their production. This methodology which has continually been collected for 30 years is still in existence today and combines secondary and primary data sources, including government data; company financial data and primary human intelligence resources to draw conclusions about markets, technologies and opportunities and to build forecast models for value, volume and pricing for short and long term adjustments to the market. This is called a “legacy” of data that is designed to make sure that all pieces of the market “puzzle” fit together. Also, Paumanok has the unique capability to benchmark the markets we study with previous studies under the same title produced at pre-destined times over the past three decades. This enables us to establish the “Delphi-Method” which suggests that the trend of sales over time will support a similar rate of growth in the future. We caveat this approach by also employing a “Box-Jenkins” method of market research which adjusts forecasts based on our knowledge of current events and their impact on the supply chain, and how that might impact future sales.

In 2018 Paumanok has been relying on the methodology most specifically to create shift models in consumption by end-use market segment and world region. The results reveal which industries paid more for passive components in FY2018 and forecasts who will pay more in FY 2019, and this is ultimately based upon a (1) vacuum in the market created when two key vendors discontinued specific product lines, and (2) an area of technology under pressure, wherein the number of vendors who can achieve certain roadmaps for capacitance are limited.
 

Figure 1: Paumanok Research Methodology

Paumanok Research Methology

©2018 Paumanok Publications, Inc. All Rights Reserved

Government Data Collection and Resources
There are many government resources around the world that we apply to our research on the electronic components industry. Our primary use of government data is to establish component production in specific countries, as well as imports and exports by country of origin and country of destination respectively. Government data can also be used to establish OEM pricing because of the availability in some instances of both value and volume data. We also will employ government statistics as they relate to the geology of countries to establish links to the important electronic component raw material trade.

Secondary Published Sources
We employ many secondary resources in our market research, including financial data from public companies, and technical data from both public and private companies that is found in trade journals and from conference proceedings. We also employ analyst data from financial institutions as well as a variety of paid intelligence subscriptions.

Primary Intelligence Gathering
Paumanok maintains a database of 10,000 subscribers that can provide intelligence on a variety of subjects related to passive electronic components. These contacts are global in nature, but are largely centered in Japan, China, Korea, USA, Germany, France, UK, Italy, Czech Republic, Brazil, Canada, Mexico and Australia.

Fixed Capacitors and Their Respective Sub-Categories: FY 2019
The following chart illustrates how the fixed capacitor market is broken into sub-categories that include the massive markets in ceramic capacitors (almost all MLCC); followed by Aluminum Electrolytic; Tantalum, Plastic Film, Carbon and Other Dielectrics as shown in the chart below.

Figure 2: Fixed Capacitor Market Breakdown by Sub-Category: FY 2019
 

Fixed Capacitor Market Breakdown by Sub-Category

*A banner year for Capacitors

Linear Resistors and Their Respective Sub-Categories: FY 2018
Linear resistors include SMD chips; axial and radial leaded resistors; and resistor networks as is shown in the chart below-

Figure 3: Fixed Linear Resistor Market Breakdown by Sub-Category: FY 2018

Fixed Linear Resistor Market Breakdown by Sub-Category

The Linear Resistor market grew sharply in FY 2018 due to strong worldwide demand from multiple industries and multiple end-use segments. In particularly strong demand was for the thick and thin film chip resistors, which would be the counterpart to MLCC and tantalum chip capacitors.  Due to specific vendor dominance of the global linear resistor market, certain companies in the USA, China and Japan have benefitted from the uptick.

Discrete Inductors and Their Respective Sub-Categories: FY 2018
The global discrete inductor market includes surface mount inductors, axial and radial leaded micro-inductors and ferrite cores.

Figure 4: Discrete Inductor Market Breakdown by Sub-Category: FY 2018

Discrete Inductor Market Breakdown by Sub-Category

Source: Paumanok Discrete Inductor - Strong smartphone demand, and stable automotive demand, and a surprise upswing in 4K TV demand in FY 2018; was offset by crushing declines in the computer and industrial segments and pushback on inventory from lower end phones no one wants anymore given the shifting preference toward specific models on a global scale.

The Passive Component Supply Chain:
Figure 5: The Passive Electronic Component Supply Chain

©2018 Paumanok Publications, Inc. All Rights Reserved

An understanding of the passive electronic component supply chain is important in establishing a clear picture of the sub-sets of the global components markets. It is important for the reader to know that the supply chain begins in the ground as mined materials and ends in the recycling bin or the landfill. Paumanok collects monthly data on the pricing and availability of critical materials consumed in the world market for passive components.

Mining of Raw Materials
The supply chain for passive electronic components begins in the ground. Certain materials are critical to the production of capacitors, resistors and inductors and must be mined. These are all considered rare earths or rare metals to some degree, and there is always considerable competition for materials among industries and nations. In capacitors the key raw materials that are mined include tantalum, barium, titanium, palladium, silver, ruthenium, platinum, gold, nickel, copper, bauxite, neodymium, zinc and yttrium. Crude oil is also considered here because it is used to make plastics. The entire component supply chain is sensitive to the costs of mined materials because they make up a substantial percentage of the costs to produce.

Raw Materials Processing
Mined materials must be processed into usable forms to be processed into electronic components. Therefore, in all instances there is a chemical processing company that bridges the gap between the mine and the component manufacturer. In some instances, certain cost competitive passive component manufacturers have materials processing capabilities in-house. The engineering of raw materials requires an expertise in nanotechnology, or the ability to create consistent ultra-small shapes and patterns upon which an electric charge can be manipulated. One of the primary maxims in component production is that the performance of the finished component is directly proportional to its size, or to its available surface area. This statement places great emphasis upon the importance of engineered raw materials. It also means that raw materials will have the largest price related to costs of goods sold.

Component Manufacturing
Passive electronic components can come in many forms and requires multiple disciplines to create. However, it can be said that four basic forms of manufacturing are employed- stacking of materials; winding of materials, pressing of materials and screen-printing of materials. In many instances there is the combination, or matching of materials in one element, and usually this is the combination of ceramic and metal, or metal and metal. Component production can also be viewed based upon “configuration.” Most capacitors are surface mount in configuration, however, a sizeable percentage of components are radial leaded, axial leaded or a multichip array or network design.

Component Distribution
Once a passive component is manufactured by a vendor, it must be distributed to the customer. Sales are either direct to an OEM (Original Equipment Manufacturer, otherwise known as a “brand” company- e.g. Intel, Samsung, Sony), or direct to an EMS (Electronic Manufacturing Services Company, e.g. SCI/Sanmina, Jabil, Foxconn) or through an authorized distributor to serve the masses (TTI, Digi-Key, Future, Arrow, Avnet, WPG). For direct sales to an OEM or EMS customer, the volumes must be of such massive proportions as to justify a dedicated sales channel. There are also cultural and regional differences. In the Americas and Europe, distributors now account for slightly more than half of regional sales, however, in the Asia-Pacific region, more sales are direct to OEM and EMS customers, regardless of size.

End-Market Consumption
End-Market consumption of passive components can be viewed based upon the end-market into which the component is sold, and the region or country into which it is sold. The traditional product based end-markets into which components are sold include Consumer Audio and Video, Telecommunications, Computers and Peripherals, Automotive, Industrial and Specialty market segments. Within each category, specific products stand out, TV sets, wireless handsets, notebook computers and tablet computers, automobiles and power supplies each stand out as passive component intensive products that consume large quantities of capacitors per box. Automotive markets can be further broken down based upon “Under-The-Hood” applications, and “Passenger Compartment” applications. The industrial market segment can be further broken down into power supplies, DC/DC converters, renewable energy systems, motors, fans and blowers, switchgear and switchboard applications, lighting and other line voltage equipment. Specialty markets can be broken down into defense and aerospace, medical electronics, undersea cable, mining electronics, railroad electronics, instrumentation and control equipment; sea-borne electronics, and oil and gas services electronics (downhole pump and data logging tools).

When we began researching passive components in the late 1980s, the computer was the new product on the global market that began to compete with parts from the massive consumer audio and video imaging markets. During the past 30 years, the rise of the handset has dominated all other aspects of the high-tech economy and completed dictated the design and direction of the capacitor, resistor and inductor industries and will continue to do so over the next five years. Additional shifts in technology, including the movement from cathode ray tube to flat panel display; and the continued “electrification” of the automobile; with additional breakthroughs in medical implant technology, oil and gas electronics, renewable energy systems, data storage and munitions occurring along the way and giving valuable opportunities to component vendors who bother to read market research reports.

Recycling of Critical Materials
The final part of the supply chain for components is recycling. Many products are recycled to reclaim their precious and rare metals, and recycling also occurs at various stages of the supply chain. The primary products that are reclaimed include ceramic capacitors, tantalum capacitors and resistors, and the primary targeted metals for recycling include palladium, gold, ruthenium, silver and tantalum. Other materials such as nickel, copper, aluminum and plastic are not recycled to any great degree because they have limited value.

The Technical Economic Maxims Associated with Passive Electronic Components:

Figure 6: The Technical Economic Maxims Associated With Passive Electronic Components

The Technical Economic Maxims Associated With Passive Electronic Components

The Two Technical Economic Maxims Associated with Passive Electronic Components

There are two primary technical factors that impact the economics of passive electronic components 1) capacitance and resistance are required for almost all electronic circuits (inductance is not always required); and 2) capacitance, resistance and inductance are equivalent to the physical size or available surface area of the finished component, which makes raw materials used in the production of capacitors key to cost, price and technical advancement.

Ubiquitous Nature of Passive Electronic Components in Electrical and Electronic Circuits

The first scientific maxim that is associated with the passive electronic component industry is that capacitance and resistance are required for almost every electronic circuit in the world. To satisfy the demand for capacitance and resistance the primary components consumed are the multilayered ceramic chip capacitor, and the thick film chip resistor. All other capacitors, including tantalum, aluminum plastic film capacitors; resistors, including nichrome, wirewound carbon and tin oxide resistors; and inductors, including ferrite beads, leaded inductors and ferrite cores are considered niche when compared to MLCC and thick film chip resistors. Inductors are also a niche market, but are still considered to be a core part of the passive electronic component space because of its large volume nature.

Relationship Between Performance and Available Surface Area:
The other technical-economic maxim that is important for the reader to understand is that the performance of the finished passive component (capacitance in microfarads for capacitors, resistance in ohms for resistors and inductance in nano-henries for discrete inductors is equivalent to the finished size of the finished passive component, or more to the point, the performance is directly proportional to the available surface area contained in the finished component.

Summary and Conclusions

There are many pieces that make up the passive electronic components supply chain. The parts in short supply in FY 2018 and FY 2019 are the MLCC, tantalum chip and thick film chip resistor, although all parts are experience growth as a peripheral impact of so much value being focused upon one area of high-tech consumption. From an investment standpoint, the financial community has labelled it one of the most significant growth events in recent memory.

Paumanok estimates that this is because vendors who experienced similar upcycles in the past especially that of 2000/2001, have embraced this cycle with more confidence and know more clearly how to maximize their return on investment in such an environment. The key investment principal going forward in the space will continue to be the variable of just how high prices can go because the supply chain is only known to panic when “the Earth actually starts shaking” and we are not there yet; what’s more, and perhaps most important for new investment, is that the passive value is only 3% of the “Bill of Materials” so the emotional reaction that dictates price offers an initial “knee-jerk” strategy of throwing money at the problem, and that is where we are in the current upcycle as of May of 2018.


Dennis M. Zogbi

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.

View other posts from Dennis M. Zogbi. View other posts from Dennis M. Zogbi.

News & Information

Lead Time Trends
Current average manufacturer lead times for parts you depend on

Supply Chain News
Coverage of global conditions impacting manufacturers

Raw Materials Prices
Trends in feedstock metals, oil and other key materials

Podcasts

Listen to our new podcast, TTI Distribution Download! TTI Specialists, supplier partners and more share their expertise and insight on the electronics industry. 

Apple | Spotify | YouTube | Google

Filter Articles By Category

View All Connector Articles


Select Contributor to view their article(s)

View All Passive Articles


Select Contributor to view their article(s)

View All Supply Chain Articles


Select Contributor to view their article(s)

Stay Updated

Subscribe to our newsletters, promotions, and product updates.

Material Costs

Search MarketEYE