MLCCs Normalizing, But Challenges Remain
Due to weakness in demand across the board combined with new production capacity coming online, we’re seeing significant reduction in lead-times for Multi-Layer Ceramic Capacitors (MLCCs) in the pico-farad range as we enter Q4. Average lead-times are dropping by about 5 weeks on large-scale orders in most categories, with the biggest drops in picofarad-class capacitors. In particular, we’re seeing substantial relief in larger (0603, 1206, etc.) package sizes as higher prices in the first half of the year drove new production capacity upstream. Demand for these larger package sizes did not keep pace with new production, so the longer-term forecast remains to move away from larger package sizes to smaller as a contraction in production and the return to higher prices and longer lead times will follow if demand remains soft.
Bucking the trend for pico-farad MLCCs are those in the micro-farad range. After a drop-off in lead times at the end of Q2, lead-times are now rising and expected to continue to rise for the next several quarters. While we expect that an overall reduction in automotive demand would have helped this class of capacitors, the desire to cut costs and reduce component counts on boards has increased their consumption of this class. Additionally, we’re seeing OEMs and manufacturers begin to gear up the coming 5G boom, and 5G infrastructure equipment is heavy with higher-capacity MLCCs.
For low-mid volume production with consumption in volumes less than a few million, we’re seeing ready availability on capacitors of all stripes, but at higher prices than a year ago, both due to increased tariffs and the underpinning value necessary to deploy new capacity that is bringing down lead times today. We expect that for most low- to mid-volume production, most classes of MLCCs will be readily available on-demand.
Tantalite Ore Shortage Continues
As we discussed previously, a tantalite ore shortage continues in the market and will continue to affect availability and pricing of tantalum capacitors, some chips resistors, and other devices that rely on tantalum. Supply for low- and mid-volume production appears stable at this time, but designers and purchasers should extend their AVLs for these components and be prepared to allow for more substitutes to prevent future supply disruptions as the shortage does not appear to be going anywhere soon.
Texas Instruments Reducing Distributor Relationships
TI continues to focus on its direct relationships with customers and has begun phasing out key distributor agreements. The biggest news on this front is that TI has announced they will end their relationship with Avnet at the end of 2020. This leaves Arrow as a primary US distributor for TI going into the future. For most of our customers, this won’t impact their ability to purchase TI components as sales will still be made through Mouser, Digi-Key, and Arrow. However, for those anticipating their designs going into high volume production, this means you’ll need to negotiate directly with TI on volume pricing.
What could we say that we haven’t all already heard in the news? They’re going away, they’re staying, they’re increasing. The news changes daily, and the only thing we can be certain about is that trade uncertainty will continue for some time. The customers with the highest volumes are being impacted the most, and the price gaps between Chinese and Taiwanese PCB fabrication are as narrow as we’ve seen in years. We continue to focus on reducing the impact MacroFab customers see, but much of the supply chain is starting to grow weary of eating lower margins. Expect to see volume PCB prices increase as the tariff burdens are shifted further to customers.
Many of the companies that intended to move out of China into SE Asia countries have done so, with factories having to go from excess to negative capacity in Vietnam and Malaysia. Unfortunately, the boom in new production in the US has slacked off moving into Q4, so we expect to see more available capacity in our Tier 3-5 network.
Instability in market demand will continue to improve availability and lead times on low-capacity, small package-size MLCCs, while re-design in the automotive market and the emergence of the coming 5G push will drive prices higher and availability lower on higher-capacity MLCCs. We continue to recommend moving away from larger package sizes, as the soft demand for them will push production capacity back down in the coming quarters.
Expect higher prices and potential shortages for tantalum capacitors and some chip resistors, but we don’t yet see a need to find technology replacements or start re-designing products now. If the tantalite shortage continues for another year, this could be a more serious issue.