Past shortages - especially the excess inventory in 2001 - are plaguing manufacturers of interconnected, passive and electromechanical (IP&E) components. Even with the global shortage of these components, manufacturers have only added a small amount of productivity. Since 2001, there have been many improvements in the electronic supply chain, but somehow it has led to another imbalance in supply.
“The shortage of multilayer ceramic capacitors (MLCC) is the most serious,” according to Stifel's industry update on July 16, 2018. “This also caused trouble for other parts of the supply chain. We heard some The parts supplier with the original delivery time is rescheduled because the customer is waiting for the MLCC or other components."
In some cases, components that cost less than a penny may affect global production lines. So why are these “gummy” components causing turmoil around the world?
The simplest explanation is that these components are increasingly entering end products, such as mobile phones, which use twice as many IP&E products as they did a few years ago. Products like the iPhone, which used to have about 120 components, now have more than 1,000.
“We can see that high demand is bringing more individuals to market, and our products are becoming more and more technical,” said Andy King, president of Arrow Global Components. “Finding a vertical market without growth will be a tough process, and the current auto-driving cars, data, industry, Internet of Things, healthcare and any ‘intelligent’ market are growing rapidly.”
According to IHS Markit, by 2020, high-end cars will contain up to $6,000 in electronics. By 2022, automotive semiconductor demand will grow by more than 7%, exceeding the 4.5% growth rate of automotive electronics systems.
Slow growth in production capacity
Despite the surge in demand, IP&E product manufacturers are still relatively conservative about increasing manufacturing capacity. During the Internet boom of the late 1990s, the demand for electronic components and suppliers surged, and the number of manufacturing industries increased. However, the market was cold during the period 2000-2001, leaving billions of dollars in unused inventory to suppliers, distributors and customers. This caused the price to collapse, and OEMs and EMS suppliers over-sell each other; the authorized distribution channel was weak and the gray market was greatly enhanced.
Leading capacitor manufacturer AVX began to expand in mid-2017. AVX CEO John Sarvis said in an analyst conference call for the first quarter of FY 2019: "We are strictly implementing this work to increase the production capacity of several of our product groups, including MLCC and 钽/polymer. In the field, we plan to increase by about 20% around 2020.” However, he explained that manufacturing equipment suppliers take up a long customer lead time, which limits their ability to expand.
Sarvis added that as capacity starts to increase from the end of this year to 2019, the industry may see weak demand, but will not reach the level of relaxation restrictions. “These capacity growth lags behind demand by 18 months. For example, from 2010 to 2015, the number of piece-rates of MLCC increased by 5% to 7% per year. In 2016 and 2017, the number of piece-rates increased by 12% to 17%. Continue to grow, we will consider supply constraints for some time to come."
Capacity contributed to new technology
Michael Knight, president of TTI Semiconductor Group, said: "At the same time, most of the capacity has been contributed to new technologies."
“IP&E component manufacturers are adding capacity to future businesses, not traditional products,” he said. Some traditional devices have been around for 20 to 30 years, and IP&E products have not made a quantum leap in semiconductor technology. IP&E manufacturers typically do not set aside funds for new manufacturing capabilities.
“If you have limited funds to invest in expansion, are you investing in products that are close to the delivery date or are they going to the next generation?” Knight added.
"I'm not sure that increasing capacity now will have a big impact," said Andy King of Arrow Electronics. “From what I know of the 'MLCC manufacturer', IP&E suppliers have not built more new MLCC factories for many years because of limited investment funds, so they have not made a lot of money. We need to accelerate, in our products. The number of MLCCs is twice that of the previous ones, and some vendors have realigned the products they will use."
Market analysts have called Murata to add multiple production lines and, more importantly, to allow customers to buy their new products. “Since 2017, Japanese MLCC manufacturers including Murata have begun to convert their general-purpose MLCC capacity into automotive electronics MLCC, so the MLCC shortage (especially the general-purpose MLCC) phenomenon has become more severe, and MLCC prices have soared. ," Seeking Alpha reports.
To a certain extent, designers and engineers have also caused shortages, and IP&E components account for about 80% of board design usage. When designers introduce new versions of their products, most of them tend to ignore 80% and focus on providing 20% of differentiation.
"Interestingly, engineers will reuse the bill of materials for the next design," TTI's Knight said. “IP and E components are readily available and used in many products. Over time, they continue to reduce costs.”
“Many people are not aware of the basic economics of the supply chain,” Knight continued. “We have reached the point where capacity is hard to catch up with the price increase.”
In 2017, MLCC prices rose by more than 20%; according to Seeking Alpha, price increases will continue until 2019.
