Passive Component Markets - The 2018 Year in Review - Paumanok/Zogbi

CY 2018 THE YEAR IN REVIEW: PASSIVE ELECTRONIC COMPONENT
MARKETS, TECHNOLOGIES AND OPPORTUNITIES
CY 2018 THE YEAR IN REVIEW:

PASSIVE ELECTRONIC COMPONENT MARKETS,
TECHNOLOGIES AND OPPORTUNITIES
JANUARY
CRL MONTHLY REVIEW: PASSIVE ELECTRONIC COMPONENT: MONTHLY
REPORT: JANUARY 2018 REVIEW
PAUMANOK ASSESSMENT OF VENDOR REPORTING:
As was expected, Samsung and Murata enjoyed excellent December quarterly sales of capacitors-
up 15% and 12% respectively. What they have in common is their high capacitance BME MLCC
lines. Yageo also grew by 15% in the quarter. TDK and Walsin did not, and grew by only 2%.
Both vendors took large growth numbers in the prior quarters, while the other vendors had
opportunities by reserving capacity.
What the Paumanok Mosaic red flags is the lack of growth in TDK MLCC and this suggests they
are not congruous with the market, as their direct competition- Murata and SEMCO recorded
double digit growth. TDK’s quote of “strength in auto” is consistent, but a decrease in sales to
“ICT” is not congruous.
The Western vendors will continue to outperform in the March quarter because the specialty
markets where they compete, especially in automotive, are still experiencing growth from
electrification process in automotive. But also, other markets such as medical, defense, space, life
sciences, telecom backbone are all growing as well. The big vendors who tend to experience a
decline in March quarter have forecasted exactly that, so Murata and TDK will show declines in
the March quarter as predicted.
ON AVX CORPORATION-
• PC Market is Flat on Year to year basis- no growth in units or value.
• HOWEVER- Server market is growing at 7% to 8% per year to support 5G, IOT and AI
Technologies.
• SSD Market is also excellent because of a memory shortage. Consumed tantalum.
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©2018 PAUMANOK PUBLICATIONS INDUSTRIAL MARKET RESEARCH
CONTACT: DENNIS ZOGBI AT dmz@PAUMANOKGROUP.COM
• Smartphone markets up 4% in 2018 to 1.5 BB Units, 2018 CY forecast is up another 4%.

Continued increase in component demand because of salient shifts in fringe demand for
smartphones from emerging economies (Shift is still occurring to higher component
content phones- not done yet).
• Telecom Infrastructure also growing to support 5G systems; broadband networks in cities
went to Korean supplier (Samsung?).
• AUTO (40% of AVX Sales)- car production growing 2.4% in 2018 to 95 MM Cars. US
car sales are down now to 17.1 MM cars from 17.5 in 2016. Big changes are in car
electronics, electrification, hybrids, EVs, autonomous fleets all driving up the value of
demand.
• DEFENSE- Global growth is 3.3% in FY 2018, fastest growth areas up by as much as 7%
for space electronics.
• OTHER- Big growth expected in Home Automation, TV, Audio, Drones, Cameras,
Robots.
• CAPEX-
• 10% GROWTH IN CERAMICS (As we understand it, our competitors are doing the same
in capacitors as we are*)
• 10% GROWTH IN TANTALUM-The growth in tantalum would be straightforward and
reflect their molded chip factory in Lanskroun. In Ceramics it is unclear. The expansion
would serve well in the specialty components markets to serve the high voltage, high
frequency and high reliability parts that are manufactured in Olean and other locales.
However, the loss of the Kyocera High Cap BME MLCC line would support them entering
that market separately in the USA.
• AVX expects about 2% to 3% growth in revenues in the March 2018 quarter. The company
noted that they were increasing prices in some instances to get margins up to level. The
company is navigating a departure of the Kyocera Resale Line and acquiring companies to
fill in the blanks as this occurs (as well as take the company in a more value-added direction
through vertical integration into antenna sets.
• AVX VERTICALLY INTEGRATING INTO MORE COMPLEX SUB-ASSEMBLIES,
following the track of Murata, T-Yuden and TDK, but applying it to VAAS market sub-
segments- interconnect, antenna. This company should be performing much better but
does a poor job of communicating the awesome projects it undertakes. They are
unravelling from Kyocera, losing the resale business and trying to replace it with
acquisitions and partnerships. The company is cash rich. The loss in the December quarter
was not adequately explained on the call and this resulted in a stock sell off. However, a
detailed analysis of the discussion reveals they remain very positive for 2018.
ON YAGEO
Yageo reported December revenues of 3,349 MM NT$ 2017- a new company record (remarkable-
up 55% from December 2016) and up 2.5% month-to-month. The quarterly revenue growth at
Yageo was 9,648 MM NT$ for December 2017, up 15% quarter-to-quarter.
2
Yageo noted that the company was experiencing the “benefits of the expansion of high-end product
lines in multiple segments.”
ON WALSIN
Walsin reported outside company sales of 59.69 MM NT$ for the December quarter, which was
up by only 1% on a quarter-to-quarter basis. December revenues were up 26% from December of
2016. Total YTD revenues were up 17.2%.
ON MURATA
Paumanok forecasted Murata revenues for the December 2017 quarter exactly as they were
reported at 414 BB Yen. A remarkable increase of 12% quarter-to-quarter following a 20% quarter
to quarter increase in the June 2017 quarter. HOWEVER, the reader will note that Murata
reasoning for growth is due to handset manufacturers needing more high capacitance BME MLCC
than are available, and brisk demand for capacitors from the automotive segment. This is the
underlying theme.
Murata also noted an increase in demand for communication modules for automotive, as well as
multilayered substrates for high end wireless communications customers.
There was also noted that inductor demand had declined quarter-to-quarter due to a pushback in
the Chinese cell phone market.
Paumanok forecasts that Murata MLCC sales should be about 450 BB Yen for the 2018 FY, up
from 375 BB Yen in FY 2017- a growth rate of 20% and which gives us a good estimation for
overakll growth of the worldwide capacitor industry for FY 2018 and also a clear indication of the
global MLCC market growth of 20% in value.
PAUMANOK FORECAST- Since Murata is weighted toward the communications end-use

market segment we expect their revenues to decline to their expected rate of 328 BB Yen in the
March quarter, and MLCC sales to also drop by about 12%. We expect continued support in the
automotive sector going forward and increased demand for more complex MLCC at the high end
of the wireless handset business.
ON TDK-
Sales in the Capacitors were ¥115,547 million (U.S.$ 1,022,540 thousand), up 13.6% year on year
from ¥101,746 million (A NINE MONTH MEASUREMENT YEAR ON YEAR). So as
Paumanok predicted the 14 to 15% growth is about right for the capacitor market in FY 2018
overall.
Quarter-to-quarter growth rates in capacitors for TDK were very small- only 2% quarter-to-
quarter, and it is apparent that most of TDK revenue in capacitors was realized in the previous
quarter (A similar event is noted by Paumanok to have taken place at Walsin and is a signature
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part of the mosaic of information; suggesting to us that both vendors sold out their capacity before
the December rush season, putting added emphasis upon sales at competitors. Regardless of this
we would have expected the entire capacitor segment to have grown more given the relationship
between their EPCOS subsidiary and the German auto makers. It may be that their MLCC sales
were up, while their aluminum and plastic film capacitor sales were down.
Sales of Inductive Devices increased by 9.8% year on year from ¥107,762 million to ¥118,371
million (U.S.$ 1,047,531 thousand). Sales increased to the automotive and the industrial equipment
markets, while decreased to the ICT market (This is consistent with Murata reporting- with Murata
clarifying that this was a pushback in the China handset market).
TDK Is noting that their sales to the Automotive market of MLCC increased while sales to the ICT
(Information, Consumer and Telecom) of MLCC decreased (this is incongruous with statements
form other manufacturers of MLCC who are stating that their sales of high end products for
modules in communications is growing (Murata). What is more is that it is NOT aluminum and
film capacitors that are suffering here as expected, because TDK notes Sales of Aluminum
Electrolytic Capacitors and Film Capacitors increased mainly to the industrial equipment market-
(and we take this to mean for industrial automation equipment markets in Germany, which are
outperforming all other industrial segments- we still see limited activity in renewables due to low
oil prices).
ON SEMCO
The company reported revenues in ceramic chip capacitor sales (MLCC) that far exceeded our
estimates. The company grew their passives business (92% MLCC, 8% Tantalum and Chip R)
from 608 BB Won (Revised Upward after the fact by 58 BB Won) to an incredible 698 BB Won
(15% growth quarter to quarter). So SEMCO growth rate in MLCC exceeded that of Murata for
the December quarter and was similar to that of Yageo. TDK showed almost no or very little
growth in their capacitor segment for the December quarter in comparison so there is a mixed bag
of growth in channel and by product portfolio. We estimate that SEMCO will continue to grow
MLCC sales in the March 2018 quarter by an additional 5%.
FEBRUARY
4
CRL MONTHLY REVIEW: PASSIVE ELECTRONIC

COMPONENT: MONTHLY REPORT: FEBRUARY 2018
REVIEW
MARKET UPDATE:
Paumanok estimates that the December quarter elevated revenue by 15% on a quarter to quarter basis, and
we now expect the value to remain elevated and grow by 2.5% for the March and June quarter as more
customers realize the shortage will impact their factory output. At most risk are segments that have lost
support in addition to losing overall share in portability end-markets.
For the Year Ending March 2018, Revenue Growth Will be As Follows-
Key Passive Products Growth in USD Annualized year-On Year
 MLCC + 22.5%
 Tantalum: +17.7%
 DC Plastic Film: +14.1%
 Aluminum: +12.8%
 All Capacitors: 19.00%
 Fixed Resistors:= +13.1%
 Thick and Thin Film Chip resistors: +19.95%
 Discrete Inductors= +5.6%
 Overall: +17%
Regional Growth:
 China and SE Asia: +19.00%

 Japan: +14.00%
 Europe: +11.00%
 Americas: +17.00%
 Overall: +17.00%
End Use Segment Growth
 Wireless Handsets: 1.00%

 Consumer AV- +43.00%
 Computers: +19.00%
 Automotive: +19.00%
 Power, Industrial and Lighting: +66.00%
 Space, Medical, Test and Specialty: +9.00%
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 Overall: +17.00%
Outlook:
Limited Capacity Expansion Will Extend MLCC Shortages Through Key Buying Seasons; Alternative
Dielectrics, and New Next Generation Products, Ceramics, Metals, Life Sciences Test Equipment Will
Benefit Next From The Coming Changes…
KEY FORECASTING-
Capacity Expansion Estimates
 Unit Growth and Capacity Expansion Limitations In The Industry to 5% AAG- Murata and
SEMCO have told their customers that they will expand by 5%. KEMET and AVX have stated
10% capacity expansion in specific component groupings, such as conductive polymer. KEMET
has noted capex of 25% for axial leaded aluminum electrolytic capacitors for automotive; 23% for
conductive polymer tantalum; 15% for plastic film for automotive (OPP Film, High Temp Film);
14% for High CVg ceramic capacitors; and 12% for sensors, actuators and materials (NT products).
 MLCC and Thick Film Chip Resistor Shortage To Last Until FY 2020, Perhaps Longer (See Box-
Jenkins Analysis- which shows a five year extended MLCC forecast of growth due to limited capex
in three-dimensional stacking capacity for barium titanate dielectric composition and nickel
electrode paste.
 As a result of expanding margins in ceramics- MLCC Manufacturers are NOT supporting low
margin ceramic businesses in high voltage (Safety Capacitors have been mentioned), and lead times
for vendors in under-the-hood automotive, exhaust electronics are ALSO exposed to the narrow
segment of the market that are significant impacted by growth in the price of PGM (Precious
Metals), especially ruthenium and palladium, which this analysis shows to be skyrocketing in price
compared to a year ago. Manufacturers of MLCC and thick film chip resistors that consumer
precious metals- low layer count NPO MLCC, all thick film resistors will delay shipments of parts
until new contracts can be signed that allow for higher costs to produce.
MARCH
CRL MONTHLY REVIEW: PASSIVE ELECTRONIC
COMPONENT: MONTHLY REPORT: MARCH 2018 REVIEW
MARKET UPDATE:
 Demand for all capacitors remained tight in March 2018 on a month-to-month basis, with MLCC
still showing lead times increasing, while lead times for almost all other capacitor products have
plateaued. However, we also see additional selective movement in film and aluminum capacitors
that suggests increases in demand for industrial and automotive applications in Europe still applies.
 Almost every MLCC product line saw increases in March 2018 again, further suggesting as we get
into the holiday parts buying season that shortages may become compounded. Please note that
almost all case sizes saw another 15% to 20%. INCREASE in lead times with the ultra-small 0402
6
and 0805 parts, as well as all the higher CVG products regardless of case size saw jumps in lead
times signifying even tighter supply constraints on a 30 day moving average.
.
APRIL
CRL MONTHLY REVIEW: PASSIVE ELECTRONIC COMPONENT:
MONTHLY REPORT: APRIL 2018 REVIEW
 HIGH CAP BME MLCC LEAD TIMES JUMP UP

AGAIN IN APRIL
 RUTHENIUM AT $235 PER TOZ IMPACTING RESISTOR COSTS TO PRODUCE
 JUNE OUTLOOK IS EXCELLENT
 US DOLLAR STRENGTHENS ON KOREA MEETING
 BASE METAL PRICES JUMP UP IN RESPONSE TO TRADE TAXES
CAPACITOR LEAD TIMES – Demand for all capacitors remained tight in April 2018 on a
month-to-month basis, however, there was a slight reprieve in the bulk MLCC markets, but the
HIGH CAPACITANCE MLCC MARKETS in X5R and X7R continued to grow in lead times.
OVERALL RESISTOR LEAD-TIMES: Overall resistor demand continued to cool off in April
2018 as the substantial increase in thick film chip and thin film chip resistors that had been
experienced in 2017 and 2018 levelled off and then began to return to more manageable levels.
The reader should note in the following graphs that lead times for resistors remain elevated for
2018 and leads times for power resistors and specialty resistors continue to grow in April 2018
OVERALL DISCRETE INDUCTORS: Inductor demand remained strong in April 2018, after
three solid months in demand for both January and February 2018. The reader should be aware
that inductors are moving above the traditional 14 week moving average.
MAY
CRL MONTHLY REVIEW: PASSIVE ELECTRONIC COMPONENT: MONTHLY REPORT:
MAY 2018 REVIEW
7
MARKET UPDATE:
* Taiyo Yuden Announces 1,000 µF MLCC
* High Cap BME MLCC Lead Times Relax in May
* Low Picofarad MLCC Lead Times Relax in May
* Thick Film Chip Resistor Lead Times Relax in May
* Ultra-small Tantalum Chip Capacitor Lead Times SKYROCKET
* Specialty Resistor Lead Times Also Spike
MESSAGE: CAPACITOR & RESISTOR SUPPLY CHAINS SHIFTING AND REMAIN

TIGHT OVERALL IN MAY
JUNE
MONTHLY REPORT: JUNE 2018 REVIEW
 Low Picofarad MLCC Lead Times Skyrocket in June

 High Cap BME MLCC Lead Times Increase in June
 Thick Film Chip Resistor Lead Times Increase in June
 Ultra-small Tantalum Chip Capacitor Lead Times SKYROCKET and Impact other Chip Sizes
 Surface Mount RF Inductors (also multilayered) lead times skyrocket as expected
MESSAGE: CAPACITOR, RESISTOR, INDUCTOR SUPPLY CHAINS

ACTING AS EXPECTED AND MOVING UP IN JUNE AND VENDROS
PREPARE FOR HOLIDAY RELATED PRODUCTION AND FINDING MLCC
IN SHORT SUPPLY.
JULY
8

MONTHLY REPORT: JULY 2018 REVIEW
 Low Picofarad MLCC Lead Times Increase Again in July

 High Cap BME MLCC Lead Times Increase Again in July
 Tantalum Capacitor Lead Times Increase Again in July
 Yageo Revenues up 75% Quarter-To-Quarter
 Walsin Revenues up 69% Quarter-To-Quarter
 Base Metal Prices DECLINE 7% Month-To-Month (Actual Improves ROI in BME MLCC)
 Precious Metal Pricing Unchanged Month-To-Month (Ru still at $250).
MESSAGE: PRESSURE STILL ON IN ALL TYPES OF MLCC AND STILL BUILDING,

SPILLOVER INTO TANTALUM, OTHER COMPONENTS CONTINUES; YAGEO AND
WALSIN REVENUE GROWTH UNHEARD OF IN 30 YEARS
AUGUST
CRL MONTHLY REVIEW: PASSIVE ELECTRONIC COMPONENT: MONTHLY REPORT:
AUGUST 2018 REVIEW
MARKET UPDATE:
* Tantalite price moves from $86 to $97 per pound
* MLCC still tight, with both MLCC types (high cap and low cap) showing increased lead times
in August
* Thick Film Chip Resistor Lead Times Increase in August
* Specialty Resistors Remain Tight
* Ruthenium Moves Up Slightly to $255 USD Per Toz
MESSAGE: THE HISTORICAL MARKET PULLBACK IN AUGUST DID NOT OCCUR AS

EXPECTED. THIS GIVES MORE WEIGHT TO THE MARKET SHORTAGE LASTING
ANOTHER YEAR.
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SEPTEMBER
MONTHLY REPORT: SEPTEMBER 2018 REVIEW
 Weakness in ALL Resistors
 Weakness in microfarad MLCC (High Cap) Responding To Murata’s New Capacity Additions
 BUT Tightness in picofarad MLCC Remains (Where Yageo and Walsin Compete)
 Mid Cap MLCC in the 2.2 to 47 microfarad range Still In Short Supply****Yageo, Walsin Sweet
Spot for December Quarter
 Ruthenium and tantalite prices continued to rise, but they will feel the weakness in resistors next
month (October) and their process should stabilize and drop.
 Shortages in All Specialty Ceramic Capacitors- Axial Leaded MLC, Radial Leaded MLCC; SMPS
Stacked Capacitors as equipment and materials are repurposed for higher profit business that is in
short supply.
 It is as if the tide continues to recede as clearly some vendors will not be ready for this as high
temperature, high voltage and high frequency ceramic capacitors, especially those engendered to
fossil fuel related electronics will continue to lose support.
 ****The unique combination of the technology required and the massive economies of scale
required to fix the problem continue to favor vendors like Yageo and Walsin.
MESSAGE: THE COMPONENT MARKETS PULLED BACK IN

SEPTEMBER WHILE MATERIALS MARKETS GOT TIGHTER. WATCH
OUT FOR THE OCTOBER SURPRISE!!!!
OCTOBER
10

MONTHLY REPORT: OCTOBER 2018 REVIEW
 Paumanok expects the Passive Component Market To Peak in The December quarter
before dropping sharply in the March 2019 quarter. This is in line with new forecasts by
Murata and TDK.
 The Passive Component Market Weakened again in October In Capacitors and Resistors
 Lead Times for Capacitors and Resistors Declined Across The Board for All Parts – But
NOT MLCC.
 Declines were in Component Markets Peripheral To MLCC
 MLCC Markets Remain Strong, But Resistors, Tantalum, Film and Aluminum
Capacitors all Showing Signs of Weakness
 Raw Material Prices Declined Again for A 2nd Month With Nickel Prices Down Sharply
 Vendors note weakness in Handset, European Auto, and Computer End-Markets
MESSAGE: THERE WAS AN OCTOBER CORRECTION IN THE MARKET

AS DEMAND FOR MANY COMPONENTS WEAKENED.EXPECT THE
MARKET TO PEAK IN DECEMBER AND DROPPING SHARPLY IN THE
MARCH 2019 QUARTER
NOVEMBER
MONTHLY REPORT: NOVEMBER 2018 REVIEW
 Weakness in the tantalum market in November was noted, further suggesting that the
pressure on the MLCC market is alleviating further, however…
 MLCC shortage persists in large case size chips, especially those at high-capacitance
>2.2 µF in November
 Resistor markets continued their downward trend in November, led by thick and thin film
chips..
 Base metal prices, especially nickel, decline in November, making MLCC more cost
effective to produce
 Oil prices dropped drastically in November, making plastic film capacitors more cost
effective to produce
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MESSAGE: FURTHER WEAKNESS IN THE PASSIVE COMPONENT

MARKETS IN NOVEMBER. MLCC CONTINUE TO REMAIN TIGHT, BUT
THE WEAKNESS IN THE PERIPHERAL MARKETS SUGGEST THE
BUBBLE IS ABOUT TO BURST.
DECEMBER
MONTHLY REPORT: DECEMBER 2018 REVIEW
 Resistors do an “about face” in December 2018- Markets Tighten for Thick and Thin
Film Chips after three months of declines.
 MLCC markets continue to decline in both picofarad and microfarad versions, but lead
times for all MLCC products remain extremely elevated compared to prior years.
 Continued weakness in tantalum capacitors in December, especially for parts overlapping
MLCC.
 Continued weakness in December for aluminum capacitors, especially those SMD H chip
and V-chip parts that overlap MLCC in short supply.
 Inductor demand remains stable, but at elevated levels in December.
 Base metal prices declined month-on-month while precious metal prices increased or
remained elevated.
MESSAGE: WEAKNESS IN THE MLCC MARKETS AND THE MLCC

PERIPHERAL MARKETS- TANTALUM, SMD ALUMINUM, WAS
ENOUGH TO DRAG DOWN THE MARKET FOR ANOTHER MONTH.
HOWEVER, THE LEAD TIME INCREASE FOR THICK FILM CHIP AND
THIN FILM CHIP RESISTORS WAS UNEXPECTED AND
COUNTERINTUITIVE TO THE THREE MONTH DOWNWARD TREND.
Additional Resources:
http://www.paumanokgroup.com/monthly-report.html
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Passive Component Markets - The 2018 Year in Review - Paumanok/Zogbi

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CY 2018 THE YEAR IN REVIEW: PASSIVE ELECTRONIC COMPONENT

MARKETS, TECHNOLOGIES AND OPPORTUNITIES

CY 2018 THE YEAR IN REVIEW:

PAUMANOK ASSESSMENT OF VENDOR REPORTING:

• Smartphone markets up 4% in 2018 to 1.5 BB Units, 2018 CY forecast is up another 4%.

PAUMANOK FORECAST- Since Murata is weighted toward the communications end-use

CRL MONTHLY REVIEW: PASSIVE ELECTRONIC

Key Passive Products Growth in USD Annualized year-On Year

 China and SE Asia: +19.00%

End Use Segment Growth

 Wireless Handsets: 1.00%

 HIGH CAP BME MLCC LEAD TIMES JUMP UP

* Taiyo Yuden Announces 1,000 µF MLCC

* High Cap BME MLCC Lead Times Relax in May

* Low Picofarad MLCC Lead Times Relax in May

* Thick Film Chip Resistor Lead Times Relax in May

* Ultra-small Tantalum Chip Capacitor Lead Times SKYROCKET

* Specialty Resistor Lead Times Also Spike

MESSAGE: CAPACITOR & RESISTOR SUPPLY CHAINS SHIFTING AND REMAIN

 Low Picofarad MLCC Lead Times Skyrocket in June

MESSAGE: CAPACITOR, RESISTOR, INDUCTOR SUPPLY CHAINS

CRL MONTHLY REVIEW: PASSIVE ELECTRONIC COMPONENT:

 Low Picofarad MLCC Lead Times Increase Again in July

MESSAGE: PRESSURE STILL ON IN ALL TYPES OF MLCC AND STILL BUILDING,

* Tantalite price moves from $86 to $97 per pound

* Thick Film Chip Resistor Lead Times Increase in August

* Specialty Resistors Remain Tight

* Ruthenium Moves Up Slightly to $255 USD Per Toz

MESSAGE: THE HISTORICAL MARKET PULLBACK IN AUGUST DID NOT OCCUR AS

 Weakness in ALL Resistors

MESSAGE: THE COMPONENT MARKETS PULLED BACK IN

CRL MONTHLY REVIEW: PASSIVE ELECTRONIC COMPONENT:

MESSAGE: THERE WAS AN OCTOBER CORRECTION IN THE MARKET

MESSAGE: FURTHER WEAKNESS IN THE PASSIVE COMPONENT

MESSAGE: WEAKNESS IN THE MLCC MARKETS AND THE MLCC

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