The global MLCC shortage: What are your options?
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Updated 13/01/2021
Riding the MLCC rollercoaster
The supply of MLCCs suffered an unexpected and major drop in demand during 2019, which extended into the first quarter of 2020, when the market dynamic was further turned upside down by the arrival of the COVID-19 pandemic. The primary reason behind this market volatility seems to be that, after the extreme shortages witnessed back in 2018, many OEMs and contract manufacturers stockpiled components rather than following their usual, more predictable, streamlined inventory practices.
As a consequence of the unforeseen 2019 lull, MLCC producers were forced to reduce staff numbers at their production facilities. The ramifications of this have been felt most strongly in the last two quarters, as demand has returned in the Far East and, to a lesser extent, in North America and Europe. Due to a lack of fully trained staff, MLCC producers have not been able to respond as quickly as they would have liked to the ramp-up in customers’ order requirements. It has taken considerably longer to bring production capacity back online. In addition, the disruption caused by the COVID-19 outbreak to production cycles, transportation and logistics chains has only exacerbated the situation.
The MLCC business is admittedly a very tumultuous one, characterised by acute variations in demand. There are lofty peaks followed by severe troughs of equal magnitude. Consequently, it is critically important to always keep up to date with the dynamics that directly influence it.
As we enter 2021, we identify the prevailing MLCC trends, outlining:
- The emerging applications that are going to drive shipments in the years ahead
- The challenges associated with extracting the necessary raw materials (most importantly the palladium and nickel used in MLCC electrodes)
- Current difficulties relating to production and capacity
- The various issues faced by the supporting supply chain
Over the next few years, according to figures compiled by Grandview Research, the global market for MLCCs is predicted to experience a compound annual growth rate (CAGR) of approximately 5%. This means that by 2025 it will have surpassed the $12 billion annual revenue mark compared with $8.8 billion back in 2019. Projections made by other market analyst firms all forecast very similar outcomes.
Available inventory on the market has been consumed and concerns are now being raised as lead times start to lengthen mainly due to booming demand in Asia. As growth is picking up much more slowly in Europe, buyers here may be caught by surprise and frustrated when suddenly supply will become tight, with Asia consuming most of the available products. This needs to be addressed accordingly. Automotive-grade components, especially with capacitance values >1uF, and smaller case sizes up to 0402, are the first areas with shortening supply.
Main demand drivers
By 2023, the number of MLCC going into base stations is estimated to at least double, compared to 2019. The most prominent source of MLCC demand in the telecommunications sector is 5G deployment activity. Here, the utilisation of sub-6GHz and mmWave frequency bands, as well as new functionality such as beamforming, will be contributing factors.
Mobile devices and smartphone manufacturers also need higher volumes of these components. This is most notable in demand for smaller sized units, such as 0201 and 0402, predominantly in Asia. Smartphone designs now constitute over 40% of the overall MLCC market. A typical smartphone handset will incorporate several hundred MLCCs, and the higher-end models can now require more than a thousand.
Demand from automotive brands is likewise increasing, particularly for 0603, 0805 and 1206 size format MLCC components. Conventional combustion engine cars now have greater levels of sophistication. As we move from driver assistance functions towards fully autonomous systems, the quantities of data involved will spiral upwards. Several thousand MLCCs are now required in most vehicles. There are even greater expectations when we look at the electric vehicle (EV) sector. The latest EVs will call for somewhere in the region of 10,000 to 15,000 MLCCs.
Whilst small case sizes 0201 and lower are mainly consumed in Asia and represent the lion's share of all MLCC supply, European automotive and industrial customers require mostly case sizes 0402 and bigger, which are less profitable and hence less interesting for investments from manufacturers.
Geographical aspects
During the 2018 allocation, as well as during the current tightening market condition, Asia heavily dominates MLCC usage. Approximately 80% of all MLCC supply, mainly coming from Asian MLCC manufacturers, is consumed in Asia. Though supply and demand in North America and Europe should be fairly well balanced, with these markets representing relatively low significance compared to their Asian customers, it must be noted that some MLCC producers are currently redirecting their inventory. This means that they can keep their Chinese clients’ manufacturing facilities adequately stocked, but it is destined to put further pressure on their Western customers now that things are starting to pick up for them again. Even a small uptick from Asian orders to Asian MLCC manufacturers will have an over-proportional effect on accelerating shortages from those Asian MLCC suppliers to customers in Europe. It is therefore advisable for companies in Western locations to provide as much visibility as they can about their 2021 requirements and place long scheduled orders as soon as possible. By doing this, the risk of being subjected to drawn-out lead times or restricted allocations can be mitigated.
Capacity limitations and how to overcome them
Today, availability is good, but the forecast is for reduced supply, as manufacturers align with the needs of specific verticals. They will do this in order to secure their best return on investment.
Moving forwards, MLCC producers will continue to focus their attention on the most lucrative vertical markets, as already outlined. Adding further production capacity represents major capital expenditure, so companies are only going to be willing to make investment in areas where they can be certain of getting a financial return. Certain size formats and capacitance values that prove most optimal for vibrant high-volume markets will therefore be prioritised. It is hence recommended that both purchasing behaviour and future product development plans are well aligned with the focus of MLCC suppliers.
With greater emphasis being put onto smaller format MLCCs, it is possible that the availability of 0805, 1206 and 1825 sizes will become limited. In the long/medium term, redesigning your system so that it can employ smaller, higher density components (in 0201 or 0402 sizes) will make it future proof, and mean you are not left exposed to supply chain difficulties.
The prospective alternatives to MLCCs should also be investigated. Depending on the specific application criteria involved - both in terms of performance and budgetary constraints - tantalum, polymer or film-based capacitors may offer the best substitutions. In some cases, it may be possible to acquire drop-in replacements, requiring minimal engineering effort. In other cases, it might be an opportunity to rework an outdated existing design in order to curb board space utilisation, reduce the number of components, and make savings in relation to the overall bill-of-materials costs.
Choosing the right supply chain partner
By entering into direct dialogue with Avnet Abacus, customers can benefit from our in-depth knowledge of the passive component market, gain insight on how demands may affect both the pricing and the lead times of MLCC component parts, and receive advanced notice of when certain product lines are reaching end-of-life. Our experts are available to help identify and source potential alternatives to MLCCs and advise on downsizing projects. Get in touch in your local language.
Updated on 23/06/2020
The state of the market
Back in August 2018, we reported the word was experiencing a global shortage of Multi-layer Ceramic Capacitors (MLCCs). Since then, the situation has changed, and growing demand across almost all areas of electronic applications is creating extremely challenging market conditions for the industry.
Industry-wide shortages of MLCCs are likely to recur in shortening market cycles, and may cause sudden increases in prices and lead times, in the worst cases leading to production line stops.
Alternative capacitor technologies may offer a more stable market environment and help offset the impact of unexpected MLCC shortages, from both a manufacturing and cost perspective.
Why are MLCC shortages happening?
Increase in demand for MLCCs in smartphones, portable computing and the automotive industry has been considerably higher than manufacturers had previously anticipated.
While a car powered by an internal combustion engine has an MLCC count of around 2,000, the Tesla Model 5 is nearer 10,000. And between the iPhone 6s and the iPhone X, there was a jump in MLCC count from 500 to 1,000 per handset!
Although the development of the electric vehicle has played a role in the global shortage, the main demand is coming from mobile communications and computing devices. The increased functionality of these devices, combined with the need for portability, means the demand for high capacitance in small case sizes has increased, and will continue to do so.
On the supply-side, there are a number of factors contributing to a fluctuating MLCC market
Generally speaking, when prices are driven down on commoditised components, top tier producers often shift their focus to higher-margin opportunities. When this happens, and top tier producers move a product to a later stage in its life cycle, the slack is typically picked up by lower tier producers who can still make sufficient gains from these lower-priced products.
However, at the higher end of MLCC production, the technical challenges involved in the manufacturing process have prevented lower tier producers entering the market.
The manufacturing process for MLCCs (layering microscopically thin alternating layers of ceramic and metal) is complicated and results in varying yields, which poses challenges to profitability for less developed manufacturers. As a result, there are still only a small number of manufacturers who can achieve the highest levels of capacitance in this fashion.
This has created a significant barrier to lower tier manufacturers. Previous decreases in prices prevented top tier manufacturers from investing further, and this, combined with the increase in global demand has resulted and will result again in supply falling behind demand.
So what's the alternative?
One option to consider is downsizing, to follow the production trend of major MLCC producers, we recommend polymer capacitors as the most viable alternative.
Avnet Abacus is here to help you identify the best capacitor solution for your application, and in this article, we'll guide you through the technical considerations to determine whether polymer might be the right option for you.
If you’d prefer to discuss your precise requirements with a technical expert, you can get in touch with our capacitor experts in your local language.
Original article, published August 2018
The global shortage in Multi-layer Ceramic Capacitors (MLCCs) is creating extremely challenging market conditions for the electronics industry.
There’s an industry-wide shortage of MLCCs, and lead times, where quoted, are up to 50 weeks on new orders. In many cases, manufacturers have increased prices with immediate effect and have even applied price increases to back orders, regardless of when they were placed.
We’ve seen manufacturers move from extending lead times in 2017 to imposing strict allocations over a defined period in 2018, based on their capacity and the distributor’s historical backlog. Many manufacturers are no longer accepting new purchase orders from customers and in some cases are even cancelling existing orders.
Companies of various sizes are struggling to get their hands on MLCCs, which could result in production slowing down or even stopping. We’re already receiving anecdotal evidence of companies having reached line-stops because they can’t get the MLCCs to assemble their printed circuit boards.
Customers might consider resorting to non-franchised channels. But this comes with the increased risk of receiving counterfeit components which could lead to product failure and no recourse to the manufacturer.
The current market conditions are having a dramatic impact on customers, from both a manufacturing and a cost perspective.
And the situation is unlikely to improve for the next 12 to 18 months.
It’s not our intent to cause alarm. It’s our aim to provide you with information and help guide you through your options in this challenging environment.
Why the MLCC shortage is happening
The reason for the shortage is the increase in demand for MLCCs in smartphones, portable computing and the automotive industry. The increase in demand from these markets has been considerably higher than manufacturers had previously anticipated.
While a car powered by an internal combustion engine has an MLCC count of around 2,000, the new Tesla Model 5 is nearer 10,000. And between the iPhone 6s and the iPhone X, there was a jump in MLCC count from 500 to 1,000 per handset!
Although the development of the electric vehicle has played a role in the global shortage, the main demand is coming from mobile communications and computing devices. The increased functionality of these devices, combined with the need for portability, means the demand for high capacitance in small case sizes has increased, and will continue to do so.
So far, the situation has largely been driven by genuine demand as opposed to panic-buying, though it’s likely that mobile handset and automotive manufacturers will do what they can to shore up inventory to ensure continued production.
On the supply-side, there are a number of factors contributing to the current situation.
Generally speaking, when prices are driven down on commoditised components, top tier producers often shift their focus to higher-margin opportunities. When this happens, and top tier producers move a product to a later stage in its life cycle, the slack is typically picked up by lower tier producers who can still make sufficient gains from these lower-priced products.
However, at the higher end of MLCC production, the technical challenges involved in the manufacturing process have prevented lower tier producers entering the market.
The manufacturing process for MLCCs (layering microscopically thin alternating layers of ceramic and metal) is complicated and results in varying yields, which poses challenges to profitability for less developed manufacturers. As a result, there are still only a small number of manufacturers who can achieve the highest levels of capacitance in this fashion.
This has created a significant barrier to lower tier manufacturers. Previous decreases in prices prevented top tier manufacturers from investing further, and this, combined with the recent increase in global demand has resulted in supply falling behind demand.
The increase in demand, due to smartphones and electric vehicles means other sectors are feeling a squeeze on availability and delivery times, alongside price increases.
Manufacturers who can produce high cap MLCCs will, in due course, increase production capacity in response to the demand and increased pricing, but the time until shortages in the supply chain are overcome will be significant. Unfortunately, the component manufacturing business can’t move as quickly as the high-paced consumer electronics industry.
Overall, the situation has been described by some market analysts as the “perfect storm” of (economic) factors.
How long will the current situation last?
There is little sign of improvement in the next 18 months to 2 years. If anything, things look to be worsening in the short to medium term.
Some expect the shortage to last up for up to three years at least.
So what can you do?
Previously, when there’s been supply difficulties with a specific manufacturer, we would recommend looking to other manufacturers for an alternative product. However in the current market conditions it’s impossible to find availability on any direct alternatives as a short-term solution.
Because it isn’t going to get better any time soon, it’s advisable to consider alternative capacitor technologies and redesign products to minimise your exposure to the ongoing shortage of MLCCs.
If your design is reliant on MLCCs, you need to take action as soon as possible. And as such, it would be prudent to allocate engineering resource to consider redesign.
It’s important to gain a clear understanding of the potential impact on your current design cycle. And also to assess the opportunity in the medium term by considering MLCC downsizing or the possible application of polymer capacitors.
All of these options will be application dependent and will require weighing up a number of important criteria.
What's the alternative?
We recommend polymer capacitors as the most viable alternative to MLCCs.
While tantalum capacitors could provide a suitable alternative in some applications, the lead times are now extending on those too. And as a result, they are rapidly becoming a less viable option.
In this article, we’ll guide you through the technical considerations to determine whether polymer might be a viable solution for your application:
If you’d prefer to discuss your precise requirements with a technical expert, you can get in touch with our capacitor experts in your local language.
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