Expect soft prices for ceramic capacitors
Staff -- Purchasing, 6/17/2004 2:00:00 AM
Demand for multi-layer ceramic capacitors continues to grow and suppliers are building backlogs, but tags are flat to falling because of a large amount of capacity and competition from low-cost Asian suppliers.
The multi-layer layer capacitor market will grow from about $3.6 billion in 2003 to $4.4 billion in 2007, according to market researcher iSuppli. However, while unit demand continues to rise, falling prices are preventing the market from growing more.
Consider: In the first quarter of 2002, the average price of a multi-layer ceramic capacitor was $0.0086. By the first quarter of 2004 the price fell to $0.0045. Unit growth for ceramic capacitors is expected to grow about 9.5% each year through 2007, while revenue growth will average about 3% per year because of soft prices.
A key reason for the growth in unit demand, and the downward price pressure for ceramic capacitors, is the fact that they are used in large volumes in cellular phones. Most cellphone manufacturing occurs in low-cost Asian countries, including China. Phone manufacturers are under pressure to continuously reduce, and that pressure gets driven to the supply base. However, cellphone shipments continue to be strong and are boosting demand for ceramic capacitors.
It's forecast that between 450-500 cellphones will ship in 2004. It's not uncommon for a cellphone to have more than 250 capacitors and most of them are ceramic.
In the late 1990s, many cellphone manufacturers used a lot of tantalum capacitors. However, the tantalum shortage of 2000 resulted in many cellphone OEMs designing out tantalums in favor of ceramics.
"There is a fear that tantalum may go into short supply again," says John Denslinger, senior vice president for Murata North America. He says computer manufacturers are also switching to ceramic capacitors.
While demand is strong for capacitors so is competition for business, especially in Asia. "I don't think we can raise prices in the Asian marketplace," says Denslinger. "In Europe and America it may be a different story, but it is difficult in a global environment to rationalize why they would be buying a product at a higher price in one market and less in another."
The capacitor business is certainly global. More capacitors are being sold in Asia. In 2002, Murata did about 13% of its business in North America and roughly 27% in Asia. In the next three years the North American market will drop to below 10% and the percentage in Asia will increase past 30%, says Denslinger.
Most capacitor companies have shifted more manufacturing to Asia, especially China. Suppliers say customers don't require local manufacturing anymore. They want to be able to get the parts for their factories wherever they are located at the lowest possible cost.
"If you have a plant in America it is difficult to demand a premium because the part is more expensive to make," says Denslinger.
Because the cellphone is a big driver in the ceramic market, there is great emphasis on small capacitors. Capacitors in 0402 and 0201 packages are in great demand. An 0402 is about the size of a pepper flake and an 0201 is about half a pepper flake. Making such small capacitors is challenging because "it's hard to make something you can't see," says Denslinger.
Manufacturers expect demand for small capacitors to grow, but cell phones won't be the only drivers of ceramic capacitors.
Multiple customer segments including consumer electronics, computers, wired and wireless communications will drive the market over the next three years.
Manufacturers reported a backlog of up to 12 weeks which hasn't occurred since 2002.
"The combined capacity for Murata is 23 billion pieces per month and we're selling that out right now," he says.
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