While the world watches the daily Trump tariff circus erode any near-term chance of stability in the housing market, the CE space and even the avocado market, there is another problem afoot that most people have yet to see.   Cobalt is a key component of airplane gas turbine engines, and it is what makes blue glass blue, but its most common use is in the production of the anode in batteries, typically those used in mobile devices but more recently in electric car batteries.  China is the largest consumer of cobalt (~87%) and on a general basis EVs consume ~40% of the global supply, but what makes cobalt unique is that almost 75% of all cobalt produced globally comes from one country, and its not the US or China.
The Democratic Republic of the Congo produces ~74% of the world’s supply of cobalt and has ~54% of the world’s reserves of the metal, and while Australia produces between 2% and 3.5% of global supply, it is the only other country with more than 4% or 5% of global reserves (~15.5%).  This means that the DRC essentially controls the world’s supply of cobalt.  This is not a new occurrence, but something has changed recently that makes Trump’s tariff threats look mealy-mouthed in comparison.  On February 22 of last month the government of the DRC decided to halt all cobalt exports for four months.
The DRC statement indicated that the ban was put into effect “to regulate supply on the international market which is faced with a supply glut”, a reference to China’s CMOC Group (603993.CH), the globes largest miner of cobalt, more than doubling production last year, amid slowing demand.  The reaction was quick, as can be seen in the long-term and short-term charts below, with prices rising every day since the ban was announced.  That said, the long-term chart also indicates that the material is down severely from its peak in 2022, hitting lows last year not seen in over a decade.
The DRC has indicated that it will revisit the ban after three months to decide further action, but with the country holding more than half of the world’s cobalt reserves, it is expected that stockpiling has already begun.  Hopefully you bought that Tesla last year and won’t need another battery for 15 – 20 years unless it gets damaged.   Wait, do I smell something burning?

Smartphones are incredible feats of technology, squeezing innumerable parts into a rectangle typically under 20 in2 and ~ 1/3 of an inch thick.  Most smartphone owners rarely see what is on the inside of their phones, making purchase decisions (hopefully) on matching specifications to their use profile.  But inside those rectangles, packed in like sardines, are literally hundreds of ICs and other components, along with a battery, display, and assorted cameras. 
There are those that relish the thought of purchasing smartphones and then taking them apart, piece by piece, in order to quantify structure and cost.  Such a group is TechInsights, who are known for their detailed teardowns of various CE devices.  They have been kind enough to afford us a detailed look at one of their smartphone teardowns, which we summarize below.
The phone being disassembled here is the Sony (SNE) Xperia 1V, a device released in July of 2023.   Sony is not a major smartphone brand but is known for the high quality of their phones, so the example below should be a guide as to what to look for in a high-end smartphone.  We note that when the Xperia 1V was released, it sold for $1,399.  The phone weighs 188 grams, runs on Android, and has a 6.48” OLED display, along with four cameras, and runs on a Qualcomm (QCOM) Snapdragon 8 Gen 2 processor.
While the greatest share of the BOM is the broad category of integrated circuits (45.7%), the camera subsystem captures 23.7%, due to the fact that it covers 4 cameras and associated electronics, lenses, etc.  The display subsystem, which is a single 6.48” OLED display and a touchscreen, along with a polarizer and cover glass (total of 70 components), is next at 7.5%, followed by non-electronic parts (frame, etc.) at 7.2%.  More relevant to the investment community would be the breakdown of the total component types and the IC category on a branded basis.  As can be seen in the table below, the IC category carries the largest cost share by a large margin, putting significant weight on the brand share shown in the table that follows.  

Trackers have always been a part of history, with the tracking of animal food sources playing a pivotal part of human existence, but as technology has developed, particularly after the Russian satellite Sputnik was launched in October 1957, scientists and engineers realized that they could calculate location based on satellite location, and eventually launching atomic clocks into space that laid the groundwork for GPS satellite systems that are used today.  The global GPS system relies on satellites that are placed precisely 11,000 miles above the earth and therefore orbit once every 12 hours, but there are a number of global  satellite systems beside GPS (run by the US Department of Defense), such as GLONASS (run by the Russian Federal Space Agency), Galileo (run by a number of EU countries), Beidou (run by the Chinese government), IRNSS (run by the Indian government), and QZSS (run by the Japanese government).  Many of these systems have both military and civilian users and have become essential to the military as they are the basis for many targeting systems, while in civilian use, they tend to be used for geo-location and asset tracking.
As technology continued to develop, particularly with the popularity of smartphones, other tracking systems have been developed, although there are many GPS tracking devices and systems available to both individuals and commercial users for a variety of uses and prices, ranging from ~$30 for a 2.3” tracking disc and software, to larger and more powerful devices that can be used to track assets such as cars and shipping containers.  As these devices are powered internally, they have a finite lifespan, which runs from 1-2 weeks for a device that is always on and sending notifications, to 6 months for those that operate in low-power mode, with more limited communication ability.
A small company, Tile (LIFX) had been producing consumer tracking devices using Blue-tooth low-energy tracking since 2013, which had a range of ~100’ but included a system where any Tile user who was within 100’ of a lost Tile device would trigger an anonymous message to the owner, giving the location without the non-owner knowing (known as “crowd GPS”).  The idea was to attach a Tile tracker to common devices, such as keys or a TV remote, to make sure they were always able to be found, however, in 2019 it became apparent to developers that Apple (AAPL) had included in its iOS 13 release, a number of references to a product then known as B389, which fit with rumors that Apple had been developing a personal tracking device that would operate under iOS and use Apple’s in-house U1 chip that appeared in the iPhone 11. 
The Apple system used a different technology called UWB or Ultra-Wideband, which differs from standard radio transmission and Bluetooth, both of which use narrow frequency bands and transmit data continuously.  UWB broadcasts a signal that is pulsed but occupies a large frequency band, allowing it to be more powerful and carry more information without interfering with other devices.  This increased power is spread across a wide frequency band and appears as noise to other receiving devices but allows the system greater range as shown in the table below.

While other major CE brands have come out with their own UWB trackers, and a number of smaller companies continue to supply devices,  Apple is so ubiquitous that we expect they dominate the space, although we are hard pressed to find accurate shipment numbers for the entire UWB tracker space or for Apple’s AirTags.  Most estimates center around 20m units in 2021 and an expected 35m units last year, but there is little hard data that can be verified.  That said, there seems to be a resurgence in the idea that Google (GOOG) will be joining the UWB tracker race with its own tracker. 
The project, supposedly titled “Grogu” or G10, after the character in “The Mandalorian” TV series, is part of the company’s “Find My Device” initiative.   As Google purchased Nest (pvt) in 2014, the idea of a more connected home is essential to Nest’s success and in a 2022 Android update, Google included code that made obvious the company’s intention to popularize UWB by giving Android developers UWB hooks into the OS.  That said, we suspect the initial UWB focus was to enable connectivity between Nest and Google devices, such as to allowing a Google smartphone used as a music source, to move from one room to another, with speakers in each room able to instantly recognize the source and seamlessly continuing to play the music. 
We note also that the Google Pixel 7Pro (10/22) and the Pixel 6 Pro (10/21) smartphones are both UWB enabled, and while we have no real timetable for Google’s entry into the UWB tag market, the logic seems apparent.  With Android supporting ~70% of the of the smartphone world, Google has a more reasonable chance of encroaching on Apple’s personal tracker dominance than most others, and while the iPhone network gives life to Apple’s AirTag abilities, if Google releases its own tracking device, it will eventually have access to all Android phones that have UWB capabilities.  It is a bit of a chicken and egg scenario, but Google’s Android share gives them a good shot going forward.

Passive components are the Rodney Dangerfield’s of the electronics world, they get no respect, however they have become increasingly important since 2020 for two reasons.  First, the use of MLCCs (Multi-layer Ceramic Capacitors) has increased rapidly as their use in consumer devices (smartphones, etc.) and automotive applications (EVs) has increased demand, and second, the prices of the raw materials needed for producing passive components have increased considerably over the last two years, creating a volatility that is rarely seen in passive component prices.
The increased demand for consumer products during the COVID-19 pandemic was responsible for much of that volatility, however while passive raw material prices remained at unusually high levels in 2021, the Russian invasion of Ukraine last year caused a secondary spike to even higher levels but relatively quickly returned to that new baseline as supply chain routes were restored.  That said, as shown in the chart below, prices for passive raw materials have been on the rise again which is concerning for passive component pricing as we move through 1Q. 
While the overall effect of increasing passive component cost will be offset a bit by lower silicon based product prices, the inflationary environment we face is pushing consumers to be more frugal with their CE purchases, leading to the expectation that brands will offer significant discounts to entice buyers.   There has also been an increased focus on renewable energy over the last few months as a large number of weather incidents bring forward the demand for less carbon emissions from global industries, also contributing to demand for the same raw materials that are present in passive components, and that renewed demand competition seems to be, in part, responsible for the most recent spike in passive raw material prices.
However, if this rise in passive raw material component prices continues in early 2023, which it is expected to do, CE brands will have little room or incentive to lower prices and CE sales will continue to suffer at least through 1Q, so we see this as a negative datapoint in our expectations for the CE space in 1Q and possibly 2Q.  That said, given the volatility seen in some passive component raw material pricing, we expect things could change substantially during the year.  CE product brands will likely pass on cost increases more quickly this year in order to preserve margins that are already under pressure, so we expect CE product sales to be even more closely tied to manufacturing costs and raw material prices, for both passive and active components for the 2023 year.

​Qualcomm (QCOM) has released what we believe is the 1st chip set platform specifically designed for AR headsets/glasses.  Previously most AR glasses used Qualcomm Snapdragon 670 or 662 chipsets, which were designed as smartphone chipsets using typical X12 modems, Adreno 615 GPUs, and Kryo 360 CPUs.  Qualcomm saw VR as the more important device, having designed the XR1 (5/18) and the XR2 (12/19) specifically for VR headsets, although the XR1 had some features that made it at least a stepping off point for the Ar2 – Gen 1 noted here.
The AR2 – Gen 2 has been specifically designed for AR in that it uses a distributed architecture that processes latency sensitive information on the glasses themselves, while high-computational processing is transferred to the Snapdragon chipset on a smartphone, PC, or similar device with less than 2ms of latency.  The chipset uses ~50% less power than the XR2 chipset and, according to the company, has 2.5x better AI performance than the XR2, with the main processor being 40% smaller (PCB area).  The chipset supports 9 cameras, which goes toward the trend in AR for a shift from 3 degrees of freedom systems (3DoF)  to 6DoF systems that are common in VR, along with hand, eye, face, and body movement tracking.
Most significant is that Qualcomm has designed this chipset specifically for AR, which legitimizes the category further, especially as the platform is the basis for the Meta Quest Pro XR headset released last month by Meta (FB).  Qualcomm has also indicated that it is working with a number of OEMs to include the chipset in upcoming devices.  Qualcomm specified Lenovo (992.HK), LG (066570.KS), Nreal (pvt), Oppo (pvt), Rokid (pvt), Sharp (6753.JP), TCL (000100.CH), Vuzix (VUZI), and Xiaomi (1810.HK), among others as those developing platforms using the AR2 – Gen 1.  This comes in what is a particularly weak year for AR/VR after a strong growth year (units) in 2021. 
While we do see the AR/VR space as one that is growing, the industry and forecasts for the industry seem very oriented toward 2023 and 2024, likely based on expectations that Apple (AAPL) will release an XR product.  There is already some very significant differences in forecasts for AR/VR in forward years, 29.1% between high & low forecasts for 2022, 46.6% for 2023, and 105.1% for 2024, so we put little faith in any forward estimates after this year’s much revised forecasts, but we compile as many as possible to give a composite of group, and begin to map out our own set of unit volume estimates early next year.

​Samsung Electronics 005930.KS) has changed suppliers for next year’s Galaxy Z Fold 5, and seems to be eliminating smaller level suppliers for the Galaxy S flagship line, as it moves more camera business to its affiliate Samsung Electro-mechanics (SEMES) (009140.KS).  For those high-end models, Samsung has eliminated Partron (091700.KS), who was a small supplier for the Galaxy line, and will be using SEMES, MCNEX (097520.KS), and Cammsys (050110.KS) for the Galaxy Flip 5 front camera, and for the Fold 5 Samsung will use the same three suppliers with Shenzhen Sunny Optical (002876.CH) as a secondary supplier, while the upcoming Galaxy S23 line will use cameras from SEMES, Sunny, Powerlogics (047310.KS), and Namuga (190510.KS), with Partron as a back-up supplier.
Partron is trying to diversity, lessening its reliance on the smartphone business, and hoping to move into the automotive camera sector, perhaps a result of Samsung’s supplier changes, but they are still expected to be supplying cameras for Samsung’s mid-to-low priced Galaxy A and Galaxy m series which are their higher volume models but face even more price pressure from Chinese brands.  All in, Samsung’s mobile division remains under pressure to reduce costs, and has been and is expected to push even more business toward OEM’s in 2023.  This could mean less business for South Korean component suppliers, as OEMs have component source decision making license, and as Samsung pushes more business toward its own affiliates, so the race to be included in those products, such as the foldables and flagship phones, becomes even more important.

It has been a difficult year for smartphone component prices and a difficult year for smartphones in general, following a number of slow growth years for the overall smartphones space.  Apple (AAPL) has been a standout in that the company has been able to grow share over the last few years while volume leader Samsung (005930.KS) has seem no appreciable share growth.  Apple plays a more subtle marketing game in the smartphone space, limiting offerings to a very small number of models each year and paying little attention to the ‘feature race’ that is common among smartphone brands.  Rather than try to ‘out-feature’ its competitors, especially its biggest competitor, Samsung, who is also the leading smartphone display supplier to Apple, the company focuses more on style, performance, and building a large ecosystem that both feeds iPhone sales and is also fed by the same.

The ‘feature race’ is a function of the fact that the cost of components for a steady state smartphone built in 2018, should decline over time as new suppliers compete against entrenched suppliers for Apple share, and along with that axiom, comes consumer attitudes that tend to see lesser values in features as they become commonplace and are therefore less willing to pay a premium for features that are ‘last year’.  Brands, particularly Samsung, given its vast resources (captive display, captive semiconductor memory, etc.), are constantly adding features, especially to high-end or flagship models to entice consumers with the latest, greatest, or most talked about features.
Apple tends to be a laggard when it comes to features, with the company’s adoption of OLED, a slow process that was years behind other leading brands, but at the same time the company does considerable research in key areas and has bought a number of companies over the years that allow Apple to develop some of what it believes are key components, or at least have a prized research team/IP.  An example is Apple’s focus on its “Face ID” system which it unveiled in 2017 on the iPhone X.  Over 10 years ago Apple began working on developing the technology, purchasing PrimeSense (pvt) in 2013 and InVisage (pvt) in 2017 and has maintained its use since.  On that same premise, Apple has spent years working toward developing its own processor and in 2020 it replaced incumbent Intel (INTC) with its own M1 chip, produced by Taiwan Semiconductor (TSM).
By bringing the chip design in house Apple can better control both its capabilities relative to the demands of iOS and key Apple applications, and its overall performance, one of Apple’s ‘differentiators’, and while iPhone performance has always been a selling point, better performance is a key driver for the devoted Apple fan base that is always ripe to criticize competitor brands’ more generic applications, slower performance, and overcompensation with features that are plentiful but are little used.  While the A Chip series certainly is a differentiator, it also carries a cost, and Apple’s relentless push toward higher performance goals adds a bit to the BOM relative to a more generic processor or even its own predecessor.
Given that component costs have been on the rise over the last 18 months one would expect Apple to pass on those rising costs to consumers, however the high-end smartphone market has become less elastic as prices moved above $1,000 in 2017, however when looking at the iPhone Pro Max, the top end of the iPhone line, the price has not changed between 2018 and the current iPhone 14 Pro Max and remains at $1,099 base price.  During that time, the BOM has varied, with more sophisticated communication hardware, larger batteries, and more plentiful suppliers.  Apple has had to make up the margin impact of these component BOM changes in other places, such as negotiating lower assembly and shipping costs by establishing production closer to fast growing markets or by redesigning the physical aspects of the iPhone line, but in 2020 Apple stopped supplying chargers with new iPhones, which rang the bell indicating that Apple was pushing hard to maintain iPhone margins.
Component BOM for the iPhone Pro Max has varied between -4.4% and +5.2% from the mean during the period between 2018 and 2021, but soaring component costs this year have pushed the component BOM of the iPhone 14 Pro Max up 14.1% from the 2018/2021 mean, or 2.7 times the largest change over the period. Some of this can be attributed to the A16 processor that Apple is using in the iPhone Pro and Pro Max (iPhone 14 and iPhone 14+ use last year’s A15 processor), which is produced by TSM on a 4nm node[1].  While reviews seem to indicate that the faster clock speed and other features of the A16 give it a slight edge over the A15, most say the differences are negligible.  With the A16 system cost rising from ~$45 (A15) to ~$110 (A16), based on recent teardown analysis, the performance boost is an expensive one and coupled with other more expensive components, the base component cost has reached new heights.


[1] Actually a 3rd Generation 5um node

 Apple will need to make up this incursion into iPhone Pro Max margin in other places, as materials and component prices, while having come down from recent peaks, are still a cost burden.  We expect that Apple has negotiated price concessions with a number of key component suppliers by committing to higher unit volumes, which led to headlines a few months back about Apple increasing order volumes for older iPhone models along with the pre-release orders for the iPhone 14 line, a viable strategy at the time.  That said, as the macroeconomic picture deteriorated over the last few months it is getting more difficult for any smartphone brand to develop an increasingly optimistic view of the remainder of the year, which could lead to Apple having to reduce 4Q supplier expectations and lessen those volume discounts. 
There is still time for a big iPhone 14 advertising push into the holiday season, but it looks like it will be a bit more difficult for Apple to maintain iPhone 14 margins at the same level as the iPhone 13, especially as the performance differences between the iPhone 14/14+ and the iPhone 14 Pro/Pro Max seem to have encouraged consumers to lean toward higher than expected volumes of the Pro/Pro Max, which likely carry lower overall margins relative to the lower-end iPhone 14/14+.  There is one positive behind all of these component machinations, and while it will do little to help Apple financially, a look at the source of the iPhone 14 Pro Max components reveals that 32.4% of the total component BOM are sourced in the US, up from 22.6% last year, while all other regions saw component share declines.

In reference to passive components, we have mentioned Taiwan-based Yageo (2327.TT) a number of times concerning its leading share position in a number of passive component categories and its top 3 position in MLCC (Multi-layer Ceramic Capacitors), all of which the company has developed through acquisitions that target large vertical application segments and leverage those through direct sales and relationships with EMS providers and distributors.  Yageo is the share leader in SMD Resistors (34%), Tantalum Capacitors (43%), and 3rd in MLCCs (15%) and Inductors (13%) and continues to maintain a well balanced mix of components across the company as shown in Figure 1.

However, the company faces the same demand issues as other CE component manufacturers and is looking to bring up the share of its specialty products and lower its exposure to commodity components, with the goal of bringing up product segments that carry higher (premium) margins to 75% on a long-term basis.  That said, if we break down Yageo’s 2Q results by application category, we see that the ‘commodity segments (consumer, computer, & communications) represent 46% of sales, with 54% falling into ‘premium categories, which carry higher margins, longer order cycles, and have a higher barrier to entry.
What makes Yageo interesting is that last month the company made two acquisitions in a new product application segment that if included in 2Q results, would lower the ‘commodity’ share of sales from 46% to 36%, while increasing the premium segment from 54% of sales to 64% of sales (see Figure 2 & Figure 3), a major step toward the long-term goal of 75%.    Both acquisitions, which cost a total of $755.8m US, are in a new product category, that of sensors, including thin-film temperature sensors, electro-mechanical sensors, and electronic switches, all of which have applications in industrial and automotive applications (both premium categories) and putting the overall new sensor category at ~20% of sales based on 2021 sales from both acquired companies.

​All in, while we are not recommending Yageo to investors[1], we found it interesting that within a month the company’s two acquisitions changed the financial make-up of the company substantially and added another growth segment to the company’s component portfolio that is growing between 7% and 9% CAGR between 2021 and 2026.  This reduced the company’s exposure to cyclical /commodity components, with the company paying roughly 2x 2021 sales, and while the final closings will likely extend into 2023, we see it as an intelligent response to the volatility seen in many basic components over the last two years while not moving far from the company’s core manufacturing expertise, a far better response than the usual rhetoric of  ‘we will be focusing on more profitable product segments’, which usually translates into relatively minor changes to product structure and a quick return to ‘how it was’ as the cycle turns upward.


[1] We do not make specific company recommendations, nor do we have any stake in, affiliation with, or receive compensation from any company mentioned in our notes

​Lead-time and supply issues in the semiconductor space have been a thorn in the side of fabless IC chip houses since the pandemic began, and the cause of sales shortfalls and missed performance goals.  Foundries, with only limited near-term capacity expansion possibilities, rationed production, causing buyers to double order to gain leverage with silicon suppliers.  In many cases foundries are still running at full capacity, but as demand for CE products has dwindled, particularly smartphones, chip suppliers that feed the smartphone supply chain are no longer double ordering, and in some cases are cutting back to work down existing inventory.   
Recent comments from a number of network and RF equipment suppliers in Taiwan have indicated that lead times have fallen from a high of 50 weeks to a mere 30 weeks, allowing those that had been limited by foundry supply constraints in the 1st half of the year, to bring their customer fulfillment rates up by 10% or more, even as the silicon market remains tight.  While a number of such companies that were supply limited in 1H now expect to see better performance in 2H as lead times decrease and transportation costs come down a bit, with higher fulfillment rates at Unizyx (3704.TT), Sercomm (5388.TT) and Arcadyan (3596.TT) in Taiwan. 
However not everyone is a beneficiary, as Qurvo (QRVO) indicated on their quarterly call.  The company was forced to pay foundry UMC (UMC) $110m to satisfy what was essentially a take-or-pay contract that was put in place last year to ensure the company had a guaranteed share of UMC’s capacity.  As smartphone demand weakened, demand for Qorvo’s Wi-Fi and UWB (Ultra-Wideband) ICs did the same and the company was forced to reduce orders that put it below the contract minimum, triggering the payment.  UMC however still seems to be running at full capacity as other customers fill the gap.  Those agreements and double ordering that seemed so necessary ( and rightly so) last year and earlier this year are now coming back to bite the buyers while those that had to settle for revenue shortfalls due to supply constraints in the past are now getting close to meeting customer demand.  Now we just have to watch foundry results to see if the ‘slowness’ continues to trickle down.
 

Taiwan-based Yageo (2327.TT) is arguably the largest producer of passive components (capacitors, resistors, and inductors), and while passives are essential for the operation of all CE devices, they get little of the recognition and fanfare that silicon-based products receive, and remain in the shadows in the CE supply chain.  While CE products usually contain a few silicon-based components, they can have hundreds or even thousands of passives, and while they are small and quite inexpensive singly, CE devices can run without them.  With growth rates in the 2% to 3% range in good years, components tend to be relatively low-risk investments, but ones that are highly cyclical, so component company investors tend to look for sub-categories that are seeing a technology or demand change, such as MLCCs (Multi-Layer Ceramic Capacitors) that are used to regulate current flow and remove noise from circuitry and have increasing applications in mobile devices and electric vehicles.
But we digress as this note is not about the virtues of MLCCs or components in general but about inventory, much of which in the component space, is carried by distributors such as Arrow Electronics (ARW), Avnet (AVT), TTI (BRK.A), Future Electronics (pvt), and Digi-Key (pvt), who stock millions of components for their customers who are typically not large enough to buy directly from the producer.  Some are supplier authorized or franchised, while independent distributors have no direct affiliation with component producers and buy in the open market. 
In the distribution business, there are a few factors which are most important, first, are the distributor’s components legit?, and while this seems a bit odd, if a CE company finds that product failure is coming from a specific component, they will want to trace that component back to its source and that is why working with an authorized distributor has a bit premium attached.  Second is availability, which can  translate into lead time if larger quantities are needed, and again the added leverage with producers that authorized distributors have can shorten those wait periods and keep CE product roll-outs on schedule.  Last is price, and this is where independent distributors have the advantage as they can negotiate deals in the open market, which are not constrained by producer list pricing.
Back to Yageo, who just came of the best quarter in the company’s history, up 3.9% q/q and up 13.0% y/y, but warned that it is expecting sales to drop between 2% and 3% q/q as both direct customers and distributors hold back orders as they try to reduce inventory levels, which are unusually high against weak smartphone and notebook demand.  The company expects to reduce factory utilization rates in 3Q by ~10%, from 70% top 60% for standard passive components, in order to bring down inventory levels from 130 days to between 100 and 110 days, which is considered normal, by the end of the year or during 1Q ’23.  Premium passive products are still seeing strong demand from automotive, networking, and industrial customers, and will still see utilization rates between 90% and 100% at the company, but commodity passives will be the burden for the remainder of the year.
Optimistically, and perhaps rightly so, Yageo expects only minor impact from the expected pricing pressure for the remainder of the year, as the premium segment accounts for ~75% of the company’s sales (1Q), but much will depend on how quickly inventory can be drawn down to more normal levels, with the company’s view being about six month at 60% utilization to bring inventory levels down by ~20%, while little was said about how and why those inventory levels continued to build in light of the many indicators that have been pointing to a slowdown across a number of Yageo’s end market segments for some time.  We guess that if distributors are asking for product, regardless of the macro picture, Yageo had little choice but to supply whatever they were asking for, although knowing how close to the edge of a precipice they were heading and we expect other passive component manufacturers felt the same way, leading up to what will probably be a weak 2H for all..