Pricing stability returns to tantalum capacitors Gina Roos Purchasing February 17, 2005
The short-lived bubble earlier in 2004 that triggered tightness in supply for tantalum capacitors hasn't materialized into a long-term supply or pricing problem for the $2.2 billion market as once feared. Prices and leadtimes are now expected to remain steady through the first quarter of 2005, as suppliers have restored capacity that they had taken offline to meet the big increase in demand that materialized earlier last year.
One thing that will keep prices in check is capacitor suppliers negotiated lower pricing for tantalum powder. Suppliers don't expect any supply problems in the foreseeable future.
"I don't realistically expect that we'll experience anything like the 1999-2000 technology bubble anytime in the near future. We expect the tantalum supply chain to remain relatively stable," says John Warner, vice president of strategy and communications at Kemet.
Pricing also won't be a problem. The upward trend in pricing early in 2004 stabilized when unit demand slowed in the latter part of the year. Leadtimes are also stable, running about two to six weeks for many commodity products. And, with a capacity utilization rate of around 75% to 80% worldwide there is plenty of room for expansion.
Market growth Unit demand for tantalum capacitors has been increasing about 10% to 15% over the past two years, says David Valletta, senior vice president, global strategic sales, Vishay Intertechnology, with the biggest increase being in the smaller case sizes needed for mobile communications and handheld devices such as cell phones and personal data assistants (PDAs).
However, he says, revenue growth for manufacturers remains flat because severe price declines over the previous few years have offset any gains in unit volume. And only in 2004 did that price erosion begin to end.
For 2004, the global tantalum capacitor market was expected to grow about 5.5% in revenues on an 8% increase in unit shipments, says Keith Robinson, industry analyst for Frost & Sullivan, who expected the market to reach $2.2 billion in 2004, up from $2.1 billion in 2003.
"We're seeing some pickup in demand in the cell phone market and that's primarily being driven by next-generation products, which is also driving demand for smaller case size components," says Robinson. Fortunately, the greater demand for smaller case sizes hasn't caused any problems in product mix capacity, and therefore, availability.
In the commodity market, tantalum capacitor suppliers continue to shift their manufacturing into low-cost regions, particularly to China, to remain competitive. As they make the transition, North American and European-based companies are also trying to determine which markets are going to remain in the U.S. and Europe and which ones will shift to China, says Robinson.
He expects that niche or specialty products will remain in the U.S. For example, medical device manufacturers don't have any intention of moving their facilities to low-cost regions because of concerns over FDA approvals.
By contrast, leading passive component suppliers such as AVX, Kemet and Vishay have taken advantage of low-cost manufacturing regions. For example:
Vishay recently opened a new plant in Danshui, China, where a good portion of its commodity tantalum product is produced, and plans to transfer more of its production there in the future. Kemet manufactures its tantalum products predominantly in China and Mexico. The company opened its newest production facility in Suzhou, China in late 2003, and a second one in 2004. Last year, AVX opened a facility in Tianjin, China where it manufactures tantalum products. It also produces tantalum capacitors in England, the Czech Republic and Biddeford, Maine, where it manufactures specialty products. Strategic tack To increase profitability, leading component suppliers have reevaluated their business strategy and are also beginning to offer a mix of commodity and high-end product lines to offset low margins in the high-volume, commodity tantalum market, says Frost & Sullivan's Robinson. A lot of the focus: niche-type markets such as medical, factory automation, industrial, and test and measurement where they can remain profitable when the economy is down.
For instance, Vishay has concentrated a lot of its development work in the areas of conformal coated, low equivalent series resistance (ESR) and wet tantalum product lines. "Our strategy is to go to market as a commodity supplier. [But] to be able to compete as a commodity supplier, [we] also [have to] offer higher end technologies that provide more profit," Valletta says. "This has allowed us to weather the downturn over the past few years."
In the tantalum arena, Kemet focuses on its specialized KO (Kemet Organic) capacitor product line, and recently entered the wet tantalum capacitor business. These wet tantalum products are designed for military and avionics applications.
With a continued focus on higher capacitance and lower ESR, AVX recently developed a series of multianode capacitors. The multianode capacitors deliver higher capacitance. We are always striving to put more capacitance within a given case size, and are always struggling to reduce ESR," says Daniel Lane, marketing manager, tantalum products, AVX.
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