The knives are never sheathed in the passive components market. Indeed, survival in the highly price-sensitive, intensely competitive passives sector may require more thrusting and parrying, slashing and whittling than in any other high-tech segment.
Since the mid-1990s, when a raft of small, low-cost players in Taiwan and China swept into the market, the passives segment has experienced severe price erosion and rapid product commoditization. The savage competition decimated the ranks of Western companies in the sector, driving out most of the weaker players and leaving even the stronger companies battling for survival in an intensely profit-challenged environment.
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The tough competitive conditions will remain in force at least for the immediate future. While the biggest passives vendors adapted swiftly in recent years to changing market conditions, huge challenges remain.
Price pressures have grown intense even as raw-materials costs have risen, forcing those companies that have not withdrawn from the sector altogether to engage in complex hedging maneuvers and diversify their offerings, even adding active components in some cases.
To differentiate themselves from lower-cost, low-barrier, commodity vendors, the top suppliers, such as AVX, Kyocera, Murata and Vishay, have boosted R&D and other product development expenses. They have also moved into areas that smaller rivals have difficulty penetrating, such as the avionics, defense and medical markets.
The expensive shifts in strategy have come at a time when OEM customers have been demanding price concessions. What's more, OEMs' desire to reduce what industry observers call the "touch" factor has increased, with equipment vendors moving more inventory management functions to suppliers and distributors in an effort to limit their own costs. Passives vendors once benefited from such initiatives, but increased rivalry has dulled the edge gained from supply chain management as the competition has sought to move up-market.
Today, passives suppliers are seeing rising sales and even some strengthening of prices as supply shortages spike in certain segments. But wary executives are still doggedly moving forward with the reorganization programs put in place late in 2008, when the global economy cratered.