Enough demand to drive growth

Staff -- Purchasing, 1/13/2005

There will be some price erosion—maybe 2% to 3%—for capacitors in 2005 because of strong competition and weaker demand compared to 2004. But critically, unit demand will still be strong enough to guarantee growth.

The tantalum capacitor market is forecast to grow from about $2.2 billion in 2004 to $2.3 billion in 2005, says market researcher Frost and Sullivan. Multilayer ceramic capacitors revenue, which grew to about $3.7 billion in 2004, will grow about 5% in 2005.

Cell phones are a huge market for ceramic capacitors. Consider this: More than 700 million cell phones will ship in 2005 and it's not uncommon for a cell phone to have more than 250 capacitors—most of them are ceramic. That adds up to 175 billion ceramic capacitors.

There's also a market for tantalum capacity in cell phones, but nowhere near as extensive as there was before the shortage of such capacitors in 2000 triggered a design shift to ceramic.

But that's in the past. Suppliers don't expect any supply problems with tantalum in the foreseeable future. Plus, pricing for tantalum material is stable with some capacitor suppliers successfully negotiating for reduced pricing for 2005. Buyers can expect more tantalums to be designed back into phones in 2005. (Currently cell phones might have two or three tantalum capacitors.)

As a result, tantalum capacitors are again making some modest inroads—some of the latest 3G phones have 36 tantalum capacitors. "What we see now is as phones get more features in them, cell phone manufacturers are putting tantalums back in because there is no alternative," says Bill Millman, division quality manager tantalum operators for component maker AVX. "If you want a small reliable part that is insensitive to temperature, tantalum is your choice."

Whether capacitors are tantalum or ceramic, cell phone manufacturers are pushing for capacitors in smaller cases sizes as they try to squeeze more functionality into smaller cell phones. 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 that size.