The current capacity-expansion activity on the part of capacitor manufacturers is bound to alleviate the shortages and reduce the lead times that have recently plagued the market.
But that doesn't mean that all the kinks in the supply and demand chain have been worked out. In fact, the industry could be in for another tough time next year if passives suppliers aren't too careful, said Eric Pratt, director of SuppliTools Services at iSuppli Corp., an El Segundo, Calif., online components marketer.
There is no question that suppliers are being more cautious about adding capacity than they were during the last cycle, he said. In 1995, Pratt pointed out, "there was this huge oversupply that was supposed to last for years, and it was over in six months."
But as passives manufacturers work more deliberately now, he said, shortages continue. "Depending on the commodity, you're looking at 12 to 18 months to add capacity. That's very similar to a fab," Pratt said. And with the announced slowdowns by the likes of Cisco, Compaq, Dell, and Nortel, "they've spent most of what they're going to spend."
Pratt predicted that "there's going to be this block of capacity that comes on line in about early to mid-2001, and after that they're going to be taking the wait-and-see approach again. So if the market spikes again, we could easily be in a [shortage] situation."
The mobile-communications, Internet infrastructure, PC, and automotive industries have all been feeling the pinch of the multilayer ceramic capacitor (MLCC) shortage, but that is about to end for certain case-size ceramics, Pratt said.
MLCC supply began tightening in early 1999, due to demand from the mobile-communications, PC, and Internet infrastructure markets, with standard lead times quickly growing to 15 weeks and longer. The market has now tightened to the point where major suppliers of these ceramic capacitors have most of their production allocated to strategic customers, Pratt noted in a report published by iSuppli.
"This is a complete turnaround from the supply surplus that existed in the market for the five years prior to 1999," Pratt said. "Not only was there a surplus, but some major suppliers elected to add capacity in an attempt to gain market share," he said. The result was tremendous price decreases, with volume pricing of the smaller 0402 and 0603 case sizes eventually dropping to less than $3.80 per thousand.
This turned around when supplies began to tighten in the first quarter of 1999. Supply constraints, combined with increasing demand for the more expensive higher-capacitance ceramics, has driven prices back up-by as much as 50% in some cases, Pratt said.
The key to MLCCs' future, Pratt believes, is the ultrasmall 0402 case size. Mobile-phone manufacturers have been driving the demand for, and experiencing shortages of, 0402 case-size ceramics.
"Although the forecast adjustments have caused a lot of speculation in the market, suppliers have long understood the forecasts to be inflated," Pratt said. As a result, they generally planned for the numbers that are now projected: 425 million to 440 million phones this year, with 30% to 35% compound annual growth, easily achieving the projected industry production of 1 billion phones by 2003.
Following the usual pattern, production in the second half of 2000 will outpace output in the first half of the year. Generally, more than 30% of the total annual production takes place in the fourth quarter of the year.
"The major suppliers of 0402 MLCCs haven't been sitting quietly on the sidelines," Pratt said. "In fact, 0402 production expansion has been a priority for most suppliers since the shortage began."
Most suppliers have gone through the learning curve and can now manufacture these ultra-small components with yields comparable to those for larger ceramic capacitors, Pratt said. The 0402 size enables suppliers to produce up to three times as many of these capacitors, using the same equipment as some of the larger ceramics.
As a result, Pratt sees the 0402 shortage lessening considerably, with ample supply for the foreseeable future.
Whither tantalum capacitors?
Tantalum capacitors are more problematic. Tantalums are being roiled by a spike in the cost of raw materials. New capacity being brought online by capacitor manufacturers will ease that somewhat, Pratt said, and tantalums are trending a bit more toward opportunities in different markets from telecommunications. But it's still a case of wait-and-see, he said.
"Are tantalums going to be in abundance? No, they're still very tight," said Pratt. "Whether it's a true shortage or a perceived shortage, the bottom line is that tantalum powders have increased in price, and that's going to affect the cost of tantalums."
Pratt noted that Kemet Electronics Corp. recently stated publicly that it has been hit by price increases of up to 60% for tantalum powders-which it has had to pass along to its customers.
"That's a bold statement right there," he said. "That certainly will affect the large- case-size tantalums," which, it follows, use more tantalum powder.
"The only way I see that situation changing is if there arises an overabundance of tantalum capacitors on the market," Pratt said. "And we don't see any capacity excess-not in the near future, anyway."
The number of tantalum capacitors used in cell phones is dropping, Pratt noted in a recent report on the subject. Motorola Inc. has reduced the number of tantalum capacitors used per phone an average of 10% a year for the past five years.
"And Ericsson is launching a new CDMA phone that doesn't use tantalum capacitors at all," Pratt said. This phone, and others like it, will not go into significant production until late 2000 or 2001, but they are coming.
Cell-phone makers have focused a lot of time and effort on downsizing their products, and hence the components used to make them, Pratt said. Until recently, the focus has been on A and B case-size tantalum capacitors; however, the even smaller R case size is becoming the standard for next-generation cell phones. A, B, and R case sizes represent approximately 67% of projected capacity for all tantalum capacitors, Pratt said.
Where tantalums face a potentially rosier future is in PCs and Internet infrastructure applications, according to Pratt. This is not a new market for tantalums, by any means, he said. But the strong market will partially offset the downward trend in the number of tantalum capacitors used per cell phone.
With each PC comes peripheral products like hard drives, DVD-ROMs, and monitors, all of which use tantalum capacitors. The Internet has also opened opportunities for high-bandwidth network infrastructure systems. All of these systems are large users of C, D, and E case-size tantalum capacitors.
"The computer market uses much larger tantalum capacitors, which require more powder," Pratt said. "That's going to continue to be affected. We don't anticipate prices dropping at all. In fact, they might go up because of the situation with the raw material."
This past summer, iSuppli predicted that late first-quarter or early second-quarter, supply and demand would reach parity for those types of tantalum capacitors. "I don't see anything changing that," Pratt said.
The larger case sizes are produced mainly by U.S. sources, Pratt noted, with little production in other countries. "This means it'll take longer for supply to meet demand," he said. C, D, and E case-size demand lagged the mobile-phone market by about three months, and this is expected to remain strong through the second quarter of 2001.