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Global Shortage Hits MLCC Markets

The annual production of multi-layered ceramic capacitors (MLCCs) is believed to be in the region of one trillion pieces. Yet despite the sheer quantity of parts manufactured on a yearly basis, there is a global shortage.

In the past twelve months, the market for MLCCs through franchise distribution channels has been beset by continued lead time issues and price increases, with allocation slowly becoming an ever more prominent issue to contend with.

Many market analysts and media publications – backed up by our own research – indicates that this situation will not be resolved soon. The adage that demand dictates supply is, in this instance, out of the window.

The reasons for these current shortages are purely economic and can be found at both ends of the MLCC supply chain.

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At the point of manufacture, there has been a constant drive to reduce the cost of parts, so much so that there is no meaningful profit for the capacitor manufacturers. A common statistic noted is that since the market for components rebounded after the last recession, the production of MLCCs has doubled yet the value barely changed.

This price disparity is likely to change. A recent DigiTimes article stated that major MLCC firms will be raising the price of current inventory levels by 40-50% in Q2 2018. This increase will undoubtedly be passed down the supply chain. Likewise, authorised distributors have begun to inform their customers that prices will go upwards to help improve the long-standing capacity issues.

At the other end of the chain, multiple market sectors are undergoing rapid growth and the demand for MLCCs is well above any forecast and is continuing to grow. A perfect example of this is the sheer reliance on MLCCs by smartphone manufacturers. According to reports, the iPhone 7 used 900 MLCCs per device while Apple’s latest model, the iPhone X, uses 1,110 per handset – a rise of 20%.

To counter this, many manufacturers of MLCCs have decided to focus their product development on smaller case sized capacitors. Back in February, chip manufacturer Kyocera opted to discontinue its 104 and 105 specifications for 0402 and 0603-sized parts, the most widely-used variety of MLCCs.

Also, manufacturers are starting to divert resources towards more lucrative and less commoditised areas. Instead of focusing on mass-market products, manufacturers are chasing the higher margins associated with auto- and other industry-rated devices, a move which is only compounding existing supply chain and capacity constraints.

This has caused lead times of many commonly-used MLCCs to skyrocket. We have seen quotes at ninety-weeks and above and to make matters worse, for those OEMs scrambling to secure stock, some franchise distributors are refusing to accept any new business.

Unsurprisingly, perhaps, Hideki Maruyama, the CEO of Murata China, recently admitted that “the overall MLCC industry is out of stock and the capacity of the world’s largest MLCC manufacturers cannot meet the soaring demand.”

This sentiment has been repeated by many within the sector, including mainstream franchise suppliers and a Samsung official who stated that “demand for MLCCs will grow further as the shortage in production is expected to continue."

Unfortunately, the situation is likely to get worse before it gets any better. True demand through authorised distribution channels is believed to be increasing by 30% year-on-year and manufacturers will not be able to match that growth until the second half of 2019. Though, many industry experts believe that lead times will only begin to even themselves out and return to pre-shortage levels in 2020 at the earliest.

With shortages at such critical levels and many capacitor manufacturers refusing to take on new orders, franchise distributors will be unable to support the needs of their customers. We would recommend that you advance purchase any stock that you would require for the foreseeable future. Doing so will protect yourself against any further market up-cycles and will secure your production lines moving forwards.

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