MLCC Warning
MLCCs (Multi-layer Ceramic Capacitors) have been seeing increased use in hybrid and fully electric automotive applications and in 5G smartphones and similar devices. As part of that demand cycle lead times for a variety of MLCCs have increased as car manufacturers built inventory levels to avoid the crippling shortages that they faced with semiconductor products. The leading producer of MLCCs, Murata (6981.JP) (31% share) has indicated that orders for MLCCs have slowed and their book-to-bill has fallen to below 1. With capacitors the company’s largest product segment, they tend to be a good indicator as to the state of the MLCC industry, which is limited to only a few players, with the top five accounting for almost 80% of the market.
Murata stated that orders from automotive and PC related customers decreased as inventory levels returned to normal and that the company’s backlog may be reduced over the next two quarters, after capacitor sales increased 34.8% y/y in the 1st half of this year and MLCC sales increased by 7% over the same period. We expect this is as much a warning that demand from customers is being limited by material and component shortages and is expected to continue in calendar 4Q and beyond in both the automotive and PC markets, so we went back to the components themselves to see if lead times for MLCCs have been affected.
Of the 30 MLCC varieties we checked 10 had seen an increase in lead time while two had seen decreases, with the remainder stable. This indicates little change in MLCC demand as yet, which leads us back to the caution from Murata.. With some automotive silicon production increasing, we expect that much of the slower automotive order rate stems from the aggressive inventory build that occurred over the last few months, but on a longer-term basis, demand for MLCCs continues to increase as usage increases. Similarly, display drivers are also seeing a bit of production relief, and while we expect a similar inventory situation in that space, MLCC demand based on 5G continues to grow.
All in we expect tougher comparisons for MLCC providers as they lap the strong inventory build periods of earlier quarters and a more realistic growth outlook, based on real demand rather than panic inventory building. Price weakness might occur if lead times fall quickly, so greater attention to lead time updates will be necessary going forward but the underlying demand picture for MLCCs continues to grow despite potential weakness in the near-term.
Murata stated that orders from automotive and PC related customers decreased as inventory levels returned to normal and that the company’s backlog may be reduced over the next two quarters, after capacitor sales increased 34.8% y/y in the 1st half of this year and MLCC sales increased by 7% over the same period. We expect this is as much a warning that demand from customers is being limited by material and component shortages and is expected to continue in calendar 4Q and beyond in both the automotive and PC markets, so we went back to the components themselves to see if lead times for MLCCs have been affected.
Of the 30 MLCC varieties we checked 10 had seen an increase in lead time while two had seen decreases, with the remainder stable. This indicates little change in MLCC demand as yet, which leads us back to the caution from Murata.. With some automotive silicon production increasing, we expect that much of the slower automotive order rate stems from the aggressive inventory build that occurred over the last few months, but on a longer-term basis, demand for MLCCs continues to increase as usage increases. Similarly, display drivers are also seeing a bit of production relief, and while we expect a similar inventory situation in that space, MLCC demand based on 5G continues to grow.
All in we expect tougher comparisons for MLCC providers as they lap the strong inventory build periods of earlier quarters and a more realistic growth outlook, based on real demand rather than panic inventory building. Price weakness might occur if lead times fall quickly, so greater attention to lead time updates will be necessary going forward but the underlying demand picture for MLCCs continues to grow despite potential weakness in the near-term.
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