It's a buyers' market for chip resistors in smaller case sizes as capacity expansions and slower demand has resulted in shorter leadtimes and lower tags.

Lower prices mean the worldwide thick-film chip resistor market will decline from about $1.12 billion in 2000 to $1.04 billion in 2001, according to iSuppli Corp.'s Market Intelligence Group, El Segundo, Calif.

"The entire market is under tremendous price pressure," says Eric Pratt, director of Market Intelligence Services for iSuppli. He says it will be a buyers' market for chip resistors in 0402 and 0603 case sizes because of significant production capacity expansions last year to support wireless applications. He expects price reductions in the range of 15% on average, but says the ASPs of larger case sizes will not fall at that same rate.

Supply could get tight for larger case sizes as suppliers begin to de-emphasize those lines. When the market starts to recover, there will be price increases and shortages for 0805 and 1206 case sizes because there will be fewer players in the market, Pratt says. But there still will be plenty of supply for 0603 and 0402 case sizes, he adds.

Some manufacturers may exit the chip resistor market this year because of declining revenues, but Rohm Corp. won't be one of them.

"Rohm is still very seriously in the resistor market. We have de-emphasized the larger case sizes, but we still manufacture them," says Ken Sykes, senior vice president of eastern sales and worldwide distribution for Rohm Corp. in Atlanta. (Sykes notes, however, the company has "topped out on volumes for the 1206.")

Last year, Rohm had difficulty delivering 0805 package sizes because of a shift in production capacity to smaller 0603 and 0402 case sizes. "We shifted our resources to meet demand globally for the smaller case sizes. We were out of synch with the North American market last year because it's still very much involved with 0805 and 1206 chip resistors," says Sykes.

Last year, Rohm's 0805 product was on allocation, worst-case leadtimes for the smaller case sizes were 22 weeks and deliveries stretched to about 30 weeks for larger case sizes. The handheld and small form factor products drove demand, Sykes says.

Today, inventories are more than adequate to support the market. Deliveries from stock and factory leadtimes are four weeks, he says.

Manufacturers blame the inventory glut, in part, on over optimism in the telecommunications marketplace and double and triple ordering that took place to meet unrealistic demand expectations. It's an inventory correction throughout the entire supply chain all the way through to end products, says Jeff Rice, vice president of sales and marketing for KOA Speer Electronics Inc., Bradford, Pa. The industry was expecting greater sales than what really materialized, he says.

Some manufacturers say that prices for chip resistors have softened significantly. Pratt expects price declines on smaller case sizes through first half 2000 and price stabilization in the second half.

The exception is KOA Speer. Rice says pricing has not been affected, especially for larger chip sizes because of rising material costs last year.

Manufacturers say they aren't sure when overstocks will be bled out of the pipeline, but hope it happens in August or September. "I don't know when inventories will be depleted. Distribution is flooded and contract manufacturers are trying to send product back. No one can predict when inventory levels will be back in balance," Sykes says.

Some suppliers are suggesting that when inventories do become depleted, the supply imbalance could swing the other way. But there is plenty of availability in smaller case sizes and array products, as Pratt notes there have been significant capacity expansions for the smaller case sizes to support wireless applications.

Because many manufacturers had overestimated demand for arrays, excess production capacity in 2000 resulted in lower prices, Pratt says. Arrays from some manufacturers last year were readily available while discrete resistors were on allocation.

However, the shift to resistor arrays has slowed because of pricing. Pratt estimates that four-element arrays can cost between $17 and $35 per thousand while discrete resistors typically cost about $1-$3 per thousand.

Manufacturers are accepting the fact of lower revenue growth this year and some are taking some cost-cutting measures such as reducing their workforces.

Resistor manufacturers that play primarily in the thin-film chip resistor market don't feel the impact of the current market correction as strongly as the thick-film chip resistor suppliers.

"There was a slowdown in demand, but it wasn't as dramatic as thick-film chip products," says Lyle Fette, regional product manager for resistive products at BC Components in Alpharetta, Ga.

"Part of that is due to the fact that thin-film resistor chip products are precision as opposed to standard 5% and 1% product, so applications are lower volume but more stable," he says.

Leadtimes for thin-film chip resistors have returned to six to eight weeks from 30 to 36 weeks last year due to slower demand and additional production capacity, Fette says.