Manufacturers of multilayer ceramic capacitors said prices plunged again during the second quarter. This occurred, they complained, despite a surge in demand, because OEMs and EMS providers took advantage of the overcapacity situation to squeeze them for better pricing terms.
Average MLCC prices in Asia, for example, dropped to about $0.0083 in April from $0.0096 in March--the steepest decline so far this year, according to market research firm iSuppli Corp.
"Pricing negotiation is always a quarter ahead of market pricing," said Shawn Wood, an analyst with iSuppli, El Segundo, Calif. "The second-quarter erosion reflects aggressive first-quarter price negotiations."
MLCC makers said that while rising unit demand has helped offset weak prices, OEMs continue to drive a hard bargain, hurting suppliers' profits, particularly since contract negotiations that used to be yearly now occur quarterly.
"OEMs are including more products in their negotiations in an effort to get pricing down across the board," said Bill Glass, national sales manager of Samsung EM America, the San Jose-based subsidiary of Korea's Samsung Electro-Mechanics Co. Ltd.
Glass said capacitor prices continue to fall an average of 5% a quarter, with some commodity parts having fallen even more. Samsung originally expected prices to fall no more than 5% for the entire year, said Glass, adding that MLCC tags have dropped as much as 50% since 2000.
Price negotiations have intensified recently, according to John Denslinger, senior vice president of marketing for Murata Electronics North America Inc., Smyrna, Ga., the North American affiliate of Murata Manufacturing Co. Ltd., Japan.
"We don't know if the price erosion we're seeing is the last sign of desperation by buyers," he said.
At the same time, unit demand continues to rise steadily, buoyed by the growing need for capacitors in next-generation mobile phones and other products. iSuppli's Wood believes capacitor prices will level off during the second half of the year, when suppliers are expected to balk at any further OEM pricing pressures.
That news is of little comfort to vendors eager to recoup depleted margins.
"Business is traditionally on a package basis, which allows loss-leading products to be counteracted by profit lines," said Mark Burr-Lonnon, chief executive of Yageo America Inc., Dallas, the U.S. subsidiary of Taiwan's Yageo Corp. "However, it would be fair to say that in some businesses, it has become increasingly difficult to find that profit mix."
Burr-Lonnon foresees Yageo capacitor prices eroding 20% to 25% this year, offsetting projected unit sales gains of 10% to 15%.
Besides MLCCs, tags for tantalum capacitors also are dropping. "Price erosion continues to be about 4% to 5% a quarter," said a spokesman for tantalum capacitor supplier Kemet Corp., Greenville, S.C. "In the near term, we'll continue to see similar price erosion with unit sales increasing slightly."
Not helping matters for suppliers is a glut of production capacity, exacerbated by the addition of capacity at some Asian vendors preparing for an expected increase in demand.
For instance, Samsung Electro-Mechanics earlier this year said it would expand MLCC capacity 50% in 2003 to meet demand from mobile phone makers, including parent company Samsung.
"Asian suppliers are still adding capacity because of strong demand in their region," iSuppli's Wood said. "If they don't, other suppliers will have the opportunity to capture business."
Wood said Chinese capacitor makers are increasing production to serve a growing local market, and some of them are automating their plants to match the quality of larger global suppliers.
Murata's Denslinger, however, said Chinese suppliers have to catch up to Murata and other major capacitor makers as far as building advanced parts for next-generation products.
"They're not targeting higher-technology parts like 0402 capacitors, but are still building older 0603, 1206, and 0805 caps," he said.