Market Conditions: Electronic Components Shortage Trends on MLCCs.

The electronic components market has been increasingly volatile over the past few months and the trend does not show any improvement before 2020, at the earliest… A particular commodity seems to be more affected than others: MLCCs. Also, some industries are suffering more of this constraint than others, bringing to even more extended lead times for those ones. In this short article, we want to explain to you why / how this is happening, and what you should do to limit the impact on your production.

 

MLCC or Multilayer Ceramic Chip capacitor is one of the most used components in the electronic manufacturing industry. It is basically used on every PCBA (Printed Circuit Board Assembly) nowadays, and a single PCBA is usually designed with many MLCCs. This is a component well-known to absorb electronic noises.  Through advanced dielectric materials and nickel electron powders, MLCCs can provide high capacitance, suitable to the higher priced electrolytic range. Electrical design engineers usually elect MLCCs thanks to their stability of ceramics, robust performance at a relatively low cost (until now).

As of today, there are only 10 – 12 companies manufacturing these components, supplying the whole world. The bad news is that these manufacturers have now reached their maximum capacity. Originally, these components were never considered very profitable, which explains why there are so few suppliers. It was therefore never interesting or relevant for these manufacturers to invest in additional capacities, being to invest in low margin products, until now at least. With the very aggressive growth of the automotive industry (with increasing electronic content per vehicle) as well as the connected devices (or Internet of Things) phenomenon, the market now calls for doubling or tripling production, requiring MLCCs suppliers to increase production and therefore erects new facilities or extend existing ones, as well as investing in new equipment. For a lot of industry experts, this is the worst component shortage ever.

As basic as the supply and demand principle is, you probably have noticed the rise in prices on passives components. It actually started since the second half of 2016, kept rising ever since and does not seem to stop. It mostly concerns MLCCs and R-Chip resistors and will reach an annual production estimated at a trillion pieces for MLCCs. As if it wasn’t enough… some manufacturers of MLCCs predict a rise in price up to +300% by the end of the year. The demand is forecasted to increase by 40% compared to this year.

 

For the last 25 years, MLCCs have been used massively. You can find them on most of the PCB (Printed Circuit Board) assemblies. The tremendous growth of smartphones, Internet of Things (IoT), wireless network infrastructure and Electric Vehicles, demands x10 times more MLCCs components than before. This is the most sought-after component on the market right now, with a lead time of minimum 52 weeks. Automotive is the most impacted industry, particularly Electric Vehicles, requiring 10 times more MLCC capacitors than traditional combustion engine vehicles. A combustion engine car consumes 1000 to 3000 Multilayer Ceramic Chip capacitor while an Electric Vehicle (EV) needs at least 10,000. This will only get worse with Electric Vehicle mass adoption, scheduled to increase by 10 times by 2021. The number of suppliers able to produce automotive grade MLCCs is even more limited with certain high CV parts limited to 2-3 manufacturers worldwide. The automotive grade MLCCs bringing the lead time for this industry to 70 – 80 weeks minimum.

 

The Internet of Things (IoT) market is also going to be mainly affected by this shortage. By 2021, North American consumers will have 13 connected devices per person; Western Europe will have 9, Eastern Europe, 4 … for a total of approximatively 50 billion devices by 2021. Wearable, Smart Home, Green technologies… will be more than adopted by then, and part of our daily lives

 

The pressure created by this worldwide shortage has led to a high rate of counterfeit parts. It is very easy for companies, not expert in materials and supply chain to be scammed since it is impossible to test the component before it is actually assembled. The only way to know if the MLCC is viable happens once the PCB (Printed Circuit Board) is assembled and tested at the ICT (In-Circuit Testing) or Functional Testing stages. If defective MLCCs happen to be on PCB (Printed Circuit Board), it can end up costing millions of dollars and additional shortages while we look for a suitable alternative.

Predictions mention that the situation could get better by 2021, but you should follow the trend very closely.

 

So what does it mean for you, OEMs?

Well, first of all, you should start thinking about qualifying alternate parts to MLCCs and R-Chip resistors at the earlier stage possible, during the design stage of your product. Working closely with a supply chain expert, a Design Engineering firm or your EMS (Electronic Manufacturing Services) provider, can prevent some of these issues, for example. It is important in this context to optimize your supply chain: cheapest does not mean best. With an increasingly high rate of counterfeit parts available on the market, working with a trusted partner becomes critical to the viability of your product. Most likely, an EMS company will be able to help you avoid these scrupulous suppliers. Their important network and long-term relationships with components suppliers and distributors will help you finding stocks, to be known by the component manufacturer (in case of allocations) and to limit impacts on your product lifecycle as much as possible. But alternate parts, most of the time, imply you to redesign your assembly layout. Other non-MLCCs’ suppliers have already reacted to this shortage by offering a set of solutions.

For example, automotive industry can replace MLCCs with Polymer AEC-Q200 or even Aluminum, Ceramic Film or Tantalum but will mostly require a redesign of the board. It’s not an ideal situation but it is always better than waiting 80 weeks for a part, don’t you think?

 

Reach out to us and talk to our team of experts >>

 

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