The buyers' market for tantalum capacitors will continue for at least six more months, but supply is becoming more aligned with demand and prices should firm.

The painful shortages of two years ago are a distant bad memory and suppliers say there is little danger that there will be any shortages for years. However, high inventory levels of tantalum capacitors appear to have been worked off and supply and demand seems to be more balanced. That means prices should be steady over the next six months.

Prices have declined about 10-15% this year, but stabilized in the third quarter. Suppliers say prices should remain stable.

Tantalum capacitor tags declined this year although unit shipments increased. Glyndwr Smith, assistant to the CEO and senior vice president of Vishay, says unit shipments of tantalum capacitors were up 12% this year. The entire tantalum capacitor industry for the year should see unit shipments increase from about 15.1 billion to 20.4 billion, according to market intelligence provider iSuppli.

At the same time the average price of a tantalum capacitor will fall from $0.15 in 2001 to $0.11 in 2002. Revenue for the year will drop from $2.33 billion to $2.27 billion, according to iSuppli.

Suppliers say the decline in price and revenue is due to inventory overhang from 2001 and additional capacity.

"In 2000 there was a buildup of tantalum capacitors, something like six months of inventory that was in the channel," says Smith. "It wasn't bad for cap manufacturers because we sold everything. But EMS companies and distributors had the inventory. At the same time everybody added capacity toward the end of 2000 and in 2001. We ended up with a lot of inventory and a lot of capacity and that drove the price down," he says.

But suppliers say the high inventory levels have been reduced. "Our customers have worked their inventories down, " says Dan Lane, product manager for AVX. "Customers have bled off a lot of inventory and they are buying product again. But customers aren't placing long-term orders so our goal is to make sure we have products on the shelf when buyers need them," he says.

Although unit shipments increased this year, business is far from booming. "Everyone is hoping next year will be better and right now we are just weathering the storm," says Lane.

When demand does pick up, buyers should keep an eye on several trends including smaller capacitors with greater capacitance values, more low equivalent series resistance (ESR) parts and more tantalum alternative capacitors such as polymer and niobium parts.

In 2000, the growth of cell phones resulted in greater demand for tantalum capacitors in small A and B case sizes. Capacitor manufacturers continue to pack more capacitance in small packages, but demand is solid for large D and E cases sizes, which are used in power supplies. An A case size measures about .12 x .06 inches and a D size would by .28 and .170 inches.

"We haven't seen any drastic change in demand for any one case size, but as a rule, over time case sizes decrease," says Lane.

Two years ago smaller case size components were in big demand resulting in shortages. The shortages were triggered by a lack of tantalum powder needed to make capacitors. "Since then, a lot of powder companies did a lot mining and they stockpiled a tremendous amount of powder," says Lane. We probably have enough powder to carry us out 5-10 years . There is no issue in powder."

The shortages of 2000 soured a lot of companies that were dependent on tantalum capacitors for their products to ship. Many companies designed out tantalum capacitors in favor of ceramic capacitors and searched for other low cost alternatives such as polymer and niobium capacitors.

"Some people have a bad taste in their mouth about tantalum because of what happened two years ago," says Lane. "Some people are going to polymer capacitors. We are going to be doing that as well. But we have also introduced a niobium oxide capacitor," he says.

"Niobium oxide offers more avenues for growth because the material is available," says Lane. "It is very robust, almost as robust as a ceramic type material. It is lead free. It does not ignite at low voltages. A lot of people have switched to a polymer type tantalum because they are under the impression it is a different base material, but it is still tantalum," says lane.

He adds that many companies are using polymer capacitors for safety reasons because polymer doesn't burn. "Niobium oxide actually is less prone to burn than polymer and is a lower cost material and it is very abundant," says Lane.

He says a lot of OEMs in the consumer industry are going to lead-free solutions. "When you start using polymer in lead free applications, you have to solder at high temperatures an a lot of the polymer will not withstand that. Oxide will," he says.

Smith says that tantalum has advantages over other types of capacitors. "Tantalum's advantage is it has a high capacitance value (CV) ratio relative to its size. As the size of equipment shrinks, CV becomes more important. "It can be made in any size or shape and used in many applications.

Another trend to watch is capacitors with low ESR ratings.

A growing amount of equipment requires low ESR capacitors including power supplies, cell phones and any battery operated electronic equipment. "The higher the ESR, the more leakage you're going to have and the more drain you are going to have on a battery," says Lane. "The lowest energy loss you have in that circuit, the longer the battery lasts. Anybody who is concerned about energy drain and energy loss is going to be interested in low ESR," he says.

Smith expects demand for all capacitors including low ESR tantalum capacitors to pick up soon.

"We should start seeing an upturn towards the end of the year or in the first part of next year as capacity comes in line with demand and inventory has been reduced," says Smith.

He notes that 400 million cell phones will ship this year and phones use a lot of tantalum capacitors. "About 150 million computers will ship and the new growth items look like they are products that consolidate the personal digital assistant, cell phone and pocket computer," says Smith.

"The computer market is over due in terms of upgrading. Computer demand should be better next year. The military market is increasing which will be reflected in the component market next year," he says. Medical equipment, instrumentation and consumer electronics equipment should post strong shipments next year which will drive tantalum capacitor demand.