Passive component prices, which have fallen much of the year, have not yet bottomed as demand remains weak and signs of a seasonal orders uptick are scarce.
With parts readily available, the high prices and long lead times OEMs experienced during last year's shortages are unlikely to resurface soon, say suppliers and analysts.
They note that even if market conditions improve slightly, customers will continue to seek low prices, squeezing component makers' already thin margins.
"It might be overly optimistic to think price reductions won't become more severe," said Eric Gomberg, an analyst at Thomas Weisel Partners LLC, New York.
"Companies we talk to expect suppliers to bend over backwards [when negotiating new contracts]."
Ted Kundtz, an analyst at Needham & Co. Inc., New York, agrees. "There will be price declines and more pain to come," Kundtz said. "Things have fallen off a cliff here, and we're not finished yet."
From January to August, prices fell on multilayer ceramic chip and tantalum capacitors as well as carbon and metal film resistors and resistor networks, according to EBN research.
Passives suppliers were hesitant to divulge specific details on price declines, but generally agreed that prices were falling at least 5% to 10% per quarter.
"As long as order levels remain depressed, there will be pricing pressure," said Sandy Beck, vice president of sales and marketing at Kemet Corp., a Greenville, S.C., capacitor supplier. He added that prices declined 5% to 8% in the last quarter.
For Vishay Intertechnology Inc., prices on commodity passive parts continue to fall by at least 5% per quarter, according to Glyndwr Smith, senior vice president and assistant to the chief executive at the Malvern, Pa., company. However, prices on some specialty passive parts were holding steady, he said.
Some suppliers are making price concessions to move inventory, said John Denslinger, senior vice president of sales at Murata Electronics North America Inc., Smyrna, Ga. "We're reworking pricing arrangements with our distributors," he said.
Suppliers differ on the extent of further price erosion. "We might see another 3% to 5% price erosion in the fourth quarter," Smith said.
"Prices have pretty much bottomed out," said Ken Sykes, senior vice president of Eastern sales at Rohm Electronics USA LLC, San Diego. "Suppliers are already selling at break-even prices."
When orders will return is uncertain.
Component suppliers say they've shut down lines and laid off workers to reduce production capacity and have filled orders from their existing inventories to help reduce the overhang. But they concede these efforts will prove futile unless a marked upturn in orders occurs, and several don't see that upturn yet.
"Until OEMs prove they're hungry, no one is going to eat inventory," said Craig Conrad, senior vice president of global sales and marketing at TTI Inc., a Fort Worth, Texas, distributor. "Some customers still have at least a year's worth of inventory."
For some, earlier hopes of a fourth-quarter rebound have faded.
"There's nothing to suggest that the fourth quarter will be much better," Kemet's Beck said. "It depends on whether this inventory will be depleted."
Poor visibility is making it difficult for some suppli-ers to gauge future demand and orders. "Our ferrite division supplies cores to coil winder and power suppliers, not end customers," said Jim Florance, product manager for ferrite prod-ucts at EPCOS Inc., Iselin, N.J. "Demand forecasts don't get translated several tiers down the supply chain," he said.
However, Murata Electronics has seen an uptick. "We're starting to see a backlog in orders and an increase in the ratio of orders booked and shipped in the same month," Denslinger said.
One market research firm sees a thread of optimism. iSuppli Corp., El Segundo, Calif., projects passive component sales will rise from roughly $12 billion in the third quarter to $15 billion in the fourth quarter.
"We see inventory being burned off, and there's the seasonal uptick in business," said Gary Grandbois, an analyst at iSuppli. "Also, price erosion should subside because passives parts are already selling at the lowest-possible cost," he said.