The recent slowdown in consumer and OEM demand has given manufacturers of passive components a reason to believe they can overcome the severe parts shortages that developed last year. But for at least one key segment of the passives industry --power supplies--the year-long component shortages have already caused a considerable amount of damage.
These shortages have challenged power-supply makers' ability to build and ship their products to customers within customary lead times, and in some cases have adversely affected power-supply vendors' revenue and profit picture.
Perhaps the most telling illustration is the recent announcement by Artesyn Technologies Inc. that its fourth-quarter revenue and earnings will fall short of analysts' expectations, in large part due to its inability to keep pace with scheduled product shipments.
This failure stemmed largely from component supply disruptions and having to turn increasingly to distributors in an attempt to keep up with shipment dates, according to the Boca Raton, Fla., company.
Not only are power-supply vendors unable to build and ship products on time, but many OEMs have faced delays in getting their products out the door because they can't procure other components as well. This, too, has caused OEMs to postpone some of their scheduled shipments, further affecting power-supply makers' sales.
Artesyn's fourth-quarter revenue is projected to fall between $170 million and $180 million, or 6% to 11% below consensus Wall Street expectations. The company's projected earnings for the period ending Dec. 29 are expected to fall between 22 and 25 cents per diluted share, well below analysts' estimates of 39 cents per diluted share.
Artesyn has had to deal with particularly acute shortages of tantalum capacitors and inductors, according to president and chief executive Joseph O'Donnell. The company has sometimes been forced to pay distributors steep price premiums in an attempt to overcome the capacitor shortages, according to O'Donnell.
Distributors, however, can't as readily overcome the shortage of magnetic parts, such as ferrite cores. "The magnetics are often custom and have to be tooled up," he said.
Adding to the problem is the recent trend for power-supply and other companies to reduce the number of vendors they choose to deal with.
"Our preferred magnetic suppliers haven't always performed as expected, so we're working on getting others," O'Donnell said.
Artesyn's fourth-quarter earnings dip somewhat surprised at least one analyst, Neil Levy of Needham and Co. Inc. in New York. "The component shortages have been around for almost a year, but prior to the fourth quarter, the company wasn't saying that the short-ages were affecting its bottom line to the extent that they apparently were," Levy said.
The component shortages that have plagued Artesyn have also afflicted Condor Inc., Oxnard, Calif. "Capacitor lead times run as much as 26 to 40 weeks, and ferrites are even longer," said Mike Kirkowski, executive vice president. "Fortunately, we placed orders some time ago, and arranged to get part deliveries on a more continuous basis," he said.
Kirkowski does see traces of change. "Surface-mount resistors have loosened up a bit, and you can even find a few more tantalum capacitors now," he said. However, magnetics remain a problem. "If you place a new order for ferrite materials, the lead time is as much as a year," Kirkowski said.
For Vicor Corp., Andover, Mass., warnings from component suppliers of impending shortages came a little too late. "Passive-component suppliers told us they could expand their capacity by only so much to meet demand, but this was after the shortages really started getting worse," said Mike Boucher, senior director of materials. For Vicor, this meant component lead times of up to six months on components with normal lead times of six to 12 weeks, and in a few cases lead times for magnetics of up to a year.
At the peak of the component shortages last year, some suppliers "were picking and choosing their customers," Boucher said. "We visited a lot of suppliers and had to turn into salespeople, convincing them to do business with us."
But all the legwork has apparently paid off, since Vicor was able to maintain its standard lead times of four to six weeks on its first-generation DC/DC converters and six to seven weeks on its second-generation converters.
In recent months the shortages have eased a bit, according to Boucher. "Components that had lead times as long as six months are now closer to six to 12 weeks, while components whose lead times were as long as a year-namely magnetics-are now down to six months," he said. "Now, suppliers are coming to us instead of us calling them."
The six- to 12-week lead times reported by Vicor mesh with some of the lead times now being quoted by passive-component vendors. And for the most part, passives suppliers say they have begun to turn the corner in resolving the shortages.
IRC Inc., Boone, N.C., a maker of film, wirewound, and current-sensing resistors, says lead times for many of its parts have been halved from 12 to six weeks in the past month. "There appears to be some softening in the market for the next eight months or so," said Pierre LaVignette, director of sales and marketing at IRC.
For AVX Corp., Myrtle Beach, S.C., shortages of some of its components were still quite severe as recently as six weeks ago, according to Kurt Cummings, chief financial officer.
But availability of its tantalum capacitors has improved, Cummings said. "We're now working off of lead times of around nine to 12 weeks, half what they were a few months earlier," he said.
Passive-component suppliers have attempted to ameliorate the shortages by adding capacity. For instance, Vishay Intertechnology Inc., Malvern, Pa., doubled its capital spending in 2000, to $250 million from $125 million in 1999.
However, no news of expanded capacity and loosening of shortages can alleviate the current situation for smaller power-supply manufacturers, which often must scramble for the
little component inventory that is available from suppliers after they have satisfied the demands of preferred customers that typically place larger orders.
For Pico Electronics Inc., Pelham, N.Y., a maker of high-reliability power supplies, the supposedly improving component situation has not been felt, according to division manager Dennis Kelemen. "We've seen the problem get worse during the past year," Kelemen said. "We've encountered lead times on tantalum capacitors of as long as six months or more."
To add insult to injury, Kelemen said that capacitor prices have continued to rise. "We saw at least a 30% increase in capacitor prices in recent months-and that's on top of another price increase a few months before that," he said.
To this point, Pico has been able to absorb the higher component costs without passing them on to customers. However, Kelemen was skeptical whether the company will be able to continue doing that.