Tantalum capacitor shortages to ease-in about six months

By BY JAMES CARBONE -- Purchasing, 11/16/2000

Severe shortages of tantalum capacitors that have plagued buyers for about a year will continue until at least midyear 2001.

Suppliers have been adding capacity, especially for smaller case sizes used by cellular phone manufacturers. Supply constraints for those parts should ease, but suppliers have not added as much capacity for larger case sizes used by the computer industry. Those sizes will be in short supply for awhile depending on how computer shipments fare in 2001.

"Demand continues to be strong," says Glyndwr Smith, senior vice president of Vishay InterTechnologies, a leading manufacturer of capacitors. We were sold out this year, and we are now working on allocating 2001 capacity," he says.

He says that earlier this year he thought supply and demand would be in balance by Thanksgiving. "At the end of the first quarter, it was obvious that that was not going to happen. Now we think the summer of next year is when we will reach parity," says Smith.

Booming demand for cellular telephones is driving tantalum capacitor demand and is the main reason for shortages. However, some cell phone makers have reduced their forecasts, indicating slowing demand for cell phones which could help ease the tantalum capacitor supply crunch. But Smith doesn't think it will have much impact on tantalum capacitor supply.

"The publicity that wireless phone manufacturers had reduced their forecast was a big concern that the market was collapsing," he says. But what people don't realize is that they reduced their forecast from 500 million to 425 million cell phones. In 1999, they produced 283 million cell phones. Going from 283 million to 425 is still a major increase.

"The huge growth in demand in recent years caught tantalum cap manufacturers by surprise. "In 1996-1997, there were only about 100 million cell phones produced in the world. From 100 to 300 million to over 400 million is exponential growth," says Smith.

PCs need tantalums, too

Smith says demand from the computer industry for tantalums is also on the rise because microprocessor speeds are increasing.

"Computers are the second biggest consumer of tantalum capacitors," he says. "When you had a 486 microprocessor, there were only about 120 passive components on the board. With Pentium, Pentium II and III, in every version it requires more passive components including tantalum capacitors," he says. A Pentium II uses about 450 passive components, including 15 to 20 tantalum capacitors. A 486 processor would have used about four or five tantalum capacitors, says Smith.

Handheld devices such as the Palmpilot also use a lot of passive components, including capacitors, and are helping to drive demand.

Vishay sells tantalum caps to about 20 major customers including distributors. Any OEM which is not one of the 20 has to purchase through distribution.

Small is beautiful

There is some good news at least for buyers of smaller case size capacitors. Prices are beginning to stabilize for the smaller A and B case sizes. Unfortunately, prices are are still rising for the large C and D case sizes. Tags are up about 25% since the beginning of the year. Prices for the smaller case size should be stable, but tags for larger case sizes will rise 5%-10% over the next six months.

One reason for stabilizing prices is additional capacity has been added. "The industry expansion over the past 19 months has been primarily in small cases sizes driven by very early demand from cell phone manufacturers," says Sandy Beck, vice president of marketing for passives component manufacturer Kemet Electronics. "None of them have reached their expected levels of production. Small tantalums are more available than they have ever been." In addition to the extra capacity, some manufacturers converted capacity from larger case sizes to smaller ones used by cell phone makers.

"Capacity for larger case sizes is just starting and is planned though the early part of next year. It became an issue of priorities. You can only get so much production equipment," he says. Cell phone manufacturers were the first to express their need for more capacitors, according to Beck.

Demand is also rising from networking equipment manufacturers who require a variety of case sizes.

"Parts will continue to be on allocation from the first half of 2001," says Beck. Supply is very tight. If you need some "A's" you can find them, but if you need "D's" today, they may be impossible to find from a manufacturer and difficult to find from a distributor," says Beck.

Vishay has added about 25% more capacity. However, many manufacturers are being careful about new investment in production.

"You're seeing that suppliers are being more conservative in adding capacity based on what has happened in the past. "Too much capacity was added and average selling prices went down," Suppliers stopped investing in new capacity, demand picked up and now there are shortages.

Cutting back on Ta caps

Perhaps because of the supply crunch, some cellular telephone manufacturers plan to cut back on the number of tantalum capacitors used in cell phones. For instance Ericcson has developed a new cdma phone that doesn't use any tantalum capacitors. Motorola produces phones that use 13 tantalum capacitors. Previous models used 22. Some OEMs are opting to use ceramic capacitors rather than tantalum. However, that strategy has resulted in shortages of ceramic caps.

While demand is strong for Tantalum caps in small A and B sizes, manufacturers say OEMs want even smaller sizes. They see growing demand for R sizes, which are smaller than A and B case sizes. Many OEMs want capacitors that take up as little board space as possible and provide a lot of functionality. "They want to integrate as many passive components as you can on silicon to come up with a function that can replace multiple pick and place operations, says Smith.

There is also growing demand for low ESR parts.

Many of these emerging requirements are discussed with OEMs at new product development meetings. Increasingly, capacitor manufacturers are included in such meetings. In fact capacitor manufacturers say all passives are getting more attention in new product development because there may be 500 components on a board and 60%-70% of board space may be taken up by passive components.

"It's interesting. We used to be the poor relation in the family and were taken for granted," says Smith. "Now tantalum capacitors are a critical part of the circuit and are important.

Buyers can expect to buy more capacitors through distributors. Many capacitor manufacturers have directed more of their business through distributors and that trend will continue for many companies.

"We can't sell to every customer," says Smith. "There are 12,000 customers in the United States. We concentrate on the major players in the marketplace and look to our distributors to support the rest of the industry. It's a good model for us.

"On a global scale, about half of Vishay's business is through distribution. About four years ago it was 35%.