More MLCC Mishegas
Last Thursday we noted that Murata (6981.JP), the leading supplier of MLCCs (Multi-layer Ceramic Capacitors), a small, but essential component used in 5G smartphones, automotive electronics, and a myriad of other consumer electronics, had closed its factory in Takebu, Japan due to an outbreak of COVID-19 adding to the already tight market for such devices. With much of additional MLCC production coming from factories in Malaysia and the Philippines, where COVID-19 remains a significant public health threat, other suppliers are facing potential issues in terms of production, with estimates that Samsung Electro-Mechanics (), the 2nd largest producer of MLCCs, has ~40% of its capacity in those countries.
We noted that lead times for MLCCs have been increasing and we have seen data indicating that the industry fell short of demand this month by between 2% and 10%, with shortages expected to continue until early 2022, and while supplier Yageo’s (2327.TT) plan to reduce MLCC prices by 10% to its Chinese customers is still an enigma, if they are looking to generate share, China represented over 45% of MLCC demand last year, making it the largest regional buyer. China itself does have capabilities for MLCC production but has yet to establish itself as a global competitor in terms of quality, but as a market that has grown from $8.55b in 2016 to $16.25b last year, it presents an attractive opportunity for Chinese suppliers looking for growth oriented markets.
Fenghua Hi-Tech (000636.CH) has indicated that it will be spending $1.16b in three phases to increase its MLCC production capabilities by 45b units/month when fully completed or 10% of global capacity according to the company. A second Chinese MLCC supplier, Chaozhou Sanhuan (300408.CH) has also indicated that they will be raising at least $600m to increase MLCC capacity, although we have no timeline as of yet. With both companies increasing capacity by roughly 100% between 2016 and 2020, China is certainly making an attempt at penetrating the MLCC market, but much of the proposed capacity is still in the planning stage, so we expect little significant change on the supply side this year and with the problems surrounding COVID-19 in Malaysia, the Philippines, and Japan, we expect the market to remain tight this year despite Yageo’s plans.
We noted that lead times for MLCCs have been increasing and we have seen data indicating that the industry fell short of demand this month by between 2% and 10%, with shortages expected to continue until early 2022, and while supplier Yageo’s (2327.TT) plan to reduce MLCC prices by 10% to its Chinese customers is still an enigma, if they are looking to generate share, China represented over 45% of MLCC demand last year, making it the largest regional buyer. China itself does have capabilities for MLCC production but has yet to establish itself as a global competitor in terms of quality, but as a market that has grown from $8.55b in 2016 to $16.25b last year, it presents an attractive opportunity for Chinese suppliers looking for growth oriented markets.
Fenghua Hi-Tech (000636.CH) has indicated that it will be spending $1.16b in three phases to increase its MLCC production capabilities by 45b units/month when fully completed or 10% of global capacity according to the company. A second Chinese MLCC supplier, Chaozhou Sanhuan (300408.CH) has also indicated that they will be raising at least $600m to increase MLCC capacity, although we have no timeline as of yet. With both companies increasing capacity by roughly 100% between 2016 and 2020, China is certainly making an attempt at penetrating the MLCC market, but much of the proposed capacity is still in the planning stage, so we expect little significant change on the supply side this year and with the problems surrounding COVID-19 in Malaysia, the Philippines, and Japan, we expect the market to remain tight this year despite Yageo’s plans.
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