Rising demand and a sales uptick have analysts believing that the magnetic components market may be headed for stabilizing prices, restored profits, and tighter inventories the remainder of the year.
Magnetic components revenue will grow from $13.8 billion in 2002 to $14.3 billion this year, as inventory depletion and strengthening demand combine to firm prices, according to a recent report by iSuppli Corp., El Segundo, Calif. This is good news for magnetic component suppliers, which according to iSuppli watched unit sales grow 6% the first half of 2003, only to be offset by price erosion of 3% each quarter.
"The passives market was dampened the first half of 2003 as SARS joined the uncertainties around world economies, equipment demand, unit price declines, and the Middle East political and military unknowns," said iSuppli analyst Shawn Wood, in the report. "As a result, revenue growth the first half of 2003 over the second half of 2002 was exactly nothing."
Price reductions should slow, said Wood, adding that stronger demand for PCs and mobile handsets could cause shortages of some magnetic parts toward year's end. Inventories for magnetic and other passive parts have been lowering, falling below 77 days in the second quarter compared with 98 days in the first quarter, according to iSuppli. Lead times, however, have not yet lengthened, remaining at seven weeks through the first six months.
Although business is beginning to pick up, North American and European magnetic component suppliers face a stiff challenge from low-cost rivals in China and other Asian countries, iSuppli said. In response to the challenge, they are producing smaller, leading-edge, 0201 case-size parts, whose share of inductor and coil revenue has risen from 4% to 8% over the past year.
Consolidation in this sector also continues. In March, Bel Fuse Inc., Jersey City, N.J., purchased Insilco Technologies, a Dublin, Ohio, magnetic components and interconnect supplier.
The acquisition has enabled Bel to offer a greater variety of products that integrate magnetic and interconnect functions, according to a company spokesman, and has helped offset the price degradation occurring with its commodity parts.
Board-mounted magnetic components, which are expected to account for $3.7 billion of the $14.3 billion in global revenue, will continue to benefit from growth in the consumer electronics, appliances, and automotive markets, according to iSuppli. Consumer electronics, which accounts for more than a quarter of global revenue in this segment, will benefit from increasing unit sales of DVD players and recorders, with the latter projected to grow from 2.75 million in 2003 to 40 million in 2007.
Industrial electronics, 18% of board-mounted magnetic components revenue, has been hampered by soft capital expenditures, iSuppli noted. Still, growth in medical, security, and military electronics is expected to increase this sector's revenue slightly over 2002.