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    Madrid June 5, 2018

    Is the risk of paralysis of electronic products manufacturing real?

    By: José M. Luis*

    We are living complicated times in the electronic components market, especially those considered the simplest for their "low technology" and price: the MLCC's ceramic capacitors and the SMD technology resistors in all their formats and technological variants.

     

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    In the past we have suffered the global and temporary shortage of some families of gates, memories, tantalums (due to the scarcity of raw material), Renesas microprocessors (after the Fukushima nuclear accident), but never a situation like the current one with passive components.

    The situation begins to be so critical, that it would not be strange to find ourselves in the coming months with extreme situations such as not being able to manufacture a complex electronic card because we do not have the popular MLCC capacitors of 100nF decoupling or some concrete values ​​of resistance. whose nominal cost was practically zero (€ 0.001), but whose opportunity cost can be extremely high, given the impossibility of manufacturing and billing cards or equipment worth hundreds or thousands of Euros.

    The market distortion of passive components has also affected the market of tantalums that are beginning to be offered as an alternative to MLCCs. The immediate consequences are a lack of stock in the market, a lengthening of delivery times and a significant increase in sales prices.

    Spending in the last months of a standard delivery period of 8-12 weeks to one of 45-54 weeks (one year!) Has been tremendous, but moving to "undetermined deadline" or as this situation qualifies manufacturers and distributors "in allocation", has generated a certain collective hysteria in the market, not used to having problems with this type of pieces as common as cheap.

    The last twist of the deadline situation is the cancellation of orders (orders that had been confirmed!) Or even the non-acceptance of new orders by manufacturers who see in this troubled river an opportunity to make a strong correction of prices (read rise).

    The scarcity situation is complicated when distributors and end customers double or triple the orders to different suppliers with the hope that one or even all of them will dispatch them, buying everything they find available to have stock and thus cover their future needs (and something plus…). The aggravating factor of these nervous or compulsive purchases is that, being low-cost products, millions of pieces can be accumulated without investing large sums of money, which produces a real "drought" of the passive market. On the other hand, this type of products is of high turnover, so there is no great danger in accumulating merchandise that will not be sold or used in manufacturing at some point.

    Apparently all this situation begins with the strong demand caused by automotive manufacturers that every year introduce more electronics in cars (sensorics, instrumentation, etc.) as well as the strong growth of domestic demand from countries such as China in consumer electronics products (smartphones, tablets, etc.), without ignoring the explosion of the widespread use of IOT solutions, telemetering, etc.

    The main costs associated with the production of thin film resistors (Thin Film Resistors) is the ceramic that forms your body (rose by 30% in 2017) as well as the Ruthenium, a metal that has increased its price by more than 300% in that same year. These increases in manufacturing costs during 2017 have been reducing the profit margins of manufacturers in the competitive market of passive components.

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    In December 2017, Yageo, which kept its factories at the top of production, although earning less and less money due to increases in raw material costs, decided not to accept new orders for standard resistances, as well as the ceramic capacitors or MLCC. Its strategy was to focus all its activity on the manufacture of automotive-grade resistances, with greater added value, higher cost and better profit margin, which on the other hand had increased their demand.

    According to the EPCI (European Institute of Passive Components) of the 3.6 trillion chip resistors that are manufactured in the world monthly, Yageo has a 34% share. Although this particular manufacturer is not solely responsible, removing one third of the world's market capacity from one day to the next is a very good reason to have generated a chain reaction like the one described in this article, with consequences still to be discovered in The near future.

    If the basic laws of capitalism are met, probably with the strong correction of prices suffered in recent months (between 100 and 300%, for now), enter the market new manufacturers attracted by the attractive margins and reactivations or expansion of manufacturing plants of the current brands. In this way, it is expected that supply and demand will be rebalanced, bringing again tranquility and tranquility to manufacturers, distributors, subcontractors and customers.

    This balance may take months to arrive, meanwhile we must resign ourselves to wait long periods for deliveries or pay the price that those who have gone ahead to make speculative preparations of these humble but essential components to complete our card manufacturing.

    *Electronics Engineer, Ms.C. Director of Alcoelectro S.L. electronic subcontracting company (EMS)