Recovery builds for resistors, capacitors
Strong end equipment demand means buyers can expect longer leadtimes and higher prices for some passive components
Gina Roos, contributing editor -- Purchasing, 8/17/2004 2:00:00 AM
Growing global demand from several end market segments including computers, consumer electronics, medical and wireless communications is driving price stabilization for passive components.
Most leading passive component suppliers say the rate of price declines has slowed, and for some products where leadtimes are extending, buyers should expect pockets of price hikes.
Rising demand coupled with price increases translates into a growth market for passive components in 2004, say industry analysts and suppliers. Researcher Frost & Sullivan forecasts that the global capacitor market will grow to $13.13 billion in 2004, up from $12.4 billion in 2003, and the resistor market will reach $2.27 billion, up from $2.17 billion in 2003.
Although suppliers say there is increased demand across the board from several vertical markets, they expect much of the growth to come from the cellphone market. There are also strong indications that the telecommunications infrastructure market is starting to pick up. The only sector experiencing no growth is automotive, but suppliers say it will pick up again as auto dealers implement new buyer incentives.
“We’re looking at double-digit growth, driven by across-the-board demand and distribution,” says Ron Sullivan, vice president of sales and marketing for BI Technologies.
The first half of 2004 will be very healthy and that is very encouraging, says Allan Cole, director of sales and marketing for IRC’s Wirewound and Film Technologies (WAFT) Division, a subsidiary of TT electronics plc. “The doldrums that we’ve been saddled with over the past three years seems to be replaced with a more healthy and robust market not only in North America, but also on a global business,” he says.
Suppliers are optimistic that increased demand for passive components will continue into the second half of 2004. Mark Burr-Lonnon, chief executive for Yageo Corp. says business picked up globally in the first two quarters of 2004. “Our business is up more than 20% year-on-year. Some of that is due to price stabilization and we’ve been able to increase prices for some products,” he says.
Burr-Lonnon believes the remainder of the year will remain strong; unit consumption will climb and prices will continue to rise throughout the year.
However, some report uncertainty in the market. “We started the year with strong indicators of growth but in May and June we’re seeing a small correction in terms of demand level,” says John Denslinger, executive vice president of sales and marketing for Murata Electronics.
Despite the current uncertainty, Denslinger is forecasting a very positive second half due in part to the introduction of new cell phone models later this year with increased passive component content for digital camera features, color LCDs and multiband requirements. “This is a great sign for the second half of this year,” he says.
Smaller case size capacitors, particularly for 0402 and 0201, are taking the lead in space-constrained applications such as cellphones and small consumer devices.
However, as the telecommunications infrastructure business continues to grow over the next 12 to 18 months, it will drive a lot of demand for higher capacitance value and larger case size devices, says Ravi Sastry, vice president of worldwide marketing for Kemet Electronics.
In general, product strategies for passive component manufacturers continue on the same track. For capacitors, the trend is to continue to offer the smallest packages and pack more capacitance in the next smallest case sizes. Some suppliers like Murata are also moving into specialized areas such as high voltage, low equivalent series inductance (ESL) and low equivalent series resistance (ESR).
For instance, Kemet continues to advance its tantalum product business with low ESR products, smaller case sizes and higher capacitance value parts, and to offer advanced ceramic parts that offer higher capacitance in smaller case sizes.
Others are focused on providing design work and value-added type products, emphasizing niche products providing lead-free components to meet compliance to the European Union’s Reduction of Hazardous Substances and Waste Electrical and Electronic Equipment initiatives in 2006. But still, passive component manufacturers face a number of challenges this year, including increased competition from Asian suppliers, rising materials costs, and a continued trend to move manufacturing to China.
Buyer headaches
Buyers will also have to deal with several key issues. One of them includes price hikes for larger case sizes as component manufacturers place more focus on producing 0603 and smaller case size parts. This resulted in slightly longer deliveries for the larger devices earlier in the year but as manufacturers increase production capacity, leadtimes will improve.
To ensure steady supply, suppliers say that buyers need to provide forecasts even if they don’t want to place orders months ahead of time. In many cases, suppliers can provide product from stock to four weeks for forecasted demand, while unplanned demand means longer leadtimes in the six to 12-week range.
Leadtimes are stretching for several component types. Deliveries for some resistors, particularly current sense resistors, have stretched from 6-8 weeks out to 12-14 weeks, and several non-commodity products are also stretching from 5-6 weeks to 9-11 weeks. In general, suppliers don’t expect allocation issues this year with capacity utilization ranging between 75%-95%.
Buyers need to keep an eye on rising materials costs, too. A few suppliers report rising costs for metals, ceramics and inks that may drive up component prices throughout the year. “Materials suppliers held off from increasing prices over the past three years because demand was so slow,” says Steve Wade, director of sales and marketing, IRC’s Advanced Film Division, “and now that demand is up they have the ability to negotiate for some price increases.”
Wade says materials prices are going up as much as 15%. “We’ve had an across-the-board increase or at least an attempt to increase prices for just about every raw material we use,” he says.
Some suppliers such as Kemet see price hikes for high capacitance values and lower ESR products, but how much prices will climb is still difficult to determine, says Sastry of Kemet.
Buyers should also start taking a closer look at lead-free components. One of the key concerns has been that the higher temperatures involved in the reflow process have a tendency to crack some of the components, says Keith Robinson, industrial manager for electronic components and surface-mount technology for Frost & Sullivan. This will result in a new class of defects, he says.
Some of the early OEM adopters are seeing their repair and rework costs climb as they start to evaluate the lead-free process. So some of the component manufacturers are trying to develop better components that will handle these processes, Robinson says.
More competition
Sastry says one of the biggest challenges is trying to determine what the cycle changes will be going forward in the passive component market.
“It’s becoming more difficult to determine due to a couple of factors including the crash that occurred after the bubble, more players in the component market especially from Asia, and additional links in the supply chain that include the component manufacturer, distributor, EMS providers and end customers,” Sastry says. “A lot of the dynamics have changed over the past five years.”
A big concern for suppliers is continued price pressure from Asian suppliers. In some cases, these pricing headaches will mean a change in business strategies.
Although competitive price pressure has eased up in many Asian countries there is still a significant drive to maintain prices or push them lower, but overall price pressure has waned quite a bit, Denslinger says.
There are a number of ceramic chip suppliers from China and Taiwan that have now become part of the approved vendor list process with major global customers, says Sastry. “They drive increased capacity even in a down market and they tend to drive lower prices. We have to make sure that we’re competitive against those players,” he says.
Selling on function, value and features, not just on price is one way to stay ahead, Cole of IRC says. “Pricing pressures for noncommodity resistors hasn’t been as severe as it has been for commodity products,” Cole says, “but we have to recognize that suppliers in Asia are real competitors. In some cases, they appear to strictly offer a good price but customers are not sure about who they need to talk to when there are problems,” he says.
There is some uncertainty about component quality from some Asian and Chinese suppliers, which means there could be some risk involved in sourcing from them.
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