Source: TTI Market Eye article
04/04/2018 // Dennis M. Zogbi, Paumanok Inc. shares his latest view of MLCC market expansion in TTI Market Eye article.
Capacity Expansion in the Global Ceramic Capacitor Industry: Calendar-Year 2018-2019
Between March 2017 and March 2018 the global market for multilayered ceramic chip capacitors (MLCC) saw increased lead times, parts shortages and price increases resulting in a round of capacity expansion to keep up with customer needs. This cycle of disruption has happened before and in the past the up-cycle seldom lasted more than 10 to 14 months, until real capacity expansion took hold of the market. It is also important to note that immediately following a significant amount of capacity coming on line the market does an “about-face” and drops off, and when the market begins its downturn, it usually happens quickly.
Why the 2018 Up-Cycle Resembles the 2007 Up-Cycle
The current shortage and up-cycle in MLCC resembles other historical market cycles, such as occurred in 1995, 2000, 2007, and 2011 – of course, I want to note the distance between the 2011 and 2018 up-cyle is the longest stretch of time between aberrations. The 2018 upcycle, in my opinion more closely resembles the upcycle in 2007 because that too was more critically associated with technology and specifically, the ability to increase stacking capacity for the high capacitance MLCC product lines. In 2018, the same situation exists and is only limited by the ability to manage such an advanced chemical process as ceramic + metal stacking to more than 1000 layers in a footprint no bigger than a grain of salt. But what was most apparent in 2007 as it is especially apparent today, is that the number of units being produced is proportional to the ability to stack, so an increasingly larger capital investment is required to produce an increasingly smaller number of parts. As a chief technology officer of a major Japanese firm noted that as each company increases unit capacity at an increasingly higher capacitance value, yield ratios decrease, and as they enter into new capacitance value markets previously dominated by alternative dielectric technologies (tantalum and aluminum electrolytic), the overall MLCC yields for companies as while declines. Yields will be negatively impacted by the new investment in higher ceramic layer count production processes, which are plagued by low yields due primarily to the carrier tape separation from the thin ceramic dielectric layer during processing.
Back in 2007, we could see that the future of convergence would drive demand toward specific pockets of portability with multiple end-markets requiring ultra-small case size component solutions all emerging at once – handsets, tablets, digital cameras, game consoles and GPS Receivers maintained their individuality with the consumer and therefore the suite of material requirements developed and maintained by MLCC vendors was multi-faceted and not always profitable as a result.
In 2018, handsets alone now control 33% to 38% of the value proposition for MLCC manufacturers, and handset companies have encroached upon and canibalized almost all other consumer portable product markets. So the beginning of “convergence” noted in the 2007 upcycle has been wildly successful, and the handset companies have become the focal point of all electronic hierarchies moving forward (back in 2007 it was not clear which brands would win the race of convergence in portability). It is therefore not illogical for MLCC manufacturers to plan their expansion and materials suites for handset companies, and let what remains be fought over by those that survive this transition. Certain vendors have also abandoned the materials and components expertise dedicated to segments of the market that have been most unsupported in the current shortage (i.e. consumer AV, home appliance, lighting, auto UTH).
When the Market Goes South…
Certainly, the historical trend in the 1995-1996, 2000-2001, 2006-2007 and now 2018-2019 MLCC expansion scenarios was that the market value declined quickly after capacity came on line due to excessive capacity expansion and attempts by individual manufacturers to attain additional market share by expanding at a rate that exceeded that of the competition. This was due to rapid expansion among too many vendors at once at multiple tier and a drop in market value that was substantial. This is typically followed by three years of constant struggle, punctuated by a rise in demand that lasts between seven and 14 months.
MLCC Expansion Strategy Analysis
ROI Equations Over Time Show Yields Lower Over Time
One interesting aspect of capacity expansion data that is available following prior shortages of MLCC is that over time the amount of capital required to produce “high cap MLCC” continues to increase, as the resulting unit output declines. This was because the capacity is filled up based upon the number of layers that can to be stacked. As the nanotechnology becomes more precise in nickel and dielectric powders, the ability to successfully and profitably stack hundreds of layers has increased, although the yield ratios are difficult to maintain because of the sensitive nature of the production process.
In the 2018 expansion of the MLCC market it is also apparent that investments in X5R, X7R, Y5V and NPO type MLCC have a higher cost structure today for a smaller unit output tomorrow. This strategy is aligned very closely with the needs of the wireless handset business for the foreseeable future.
The majority of ceramic capacitor capacity expansion will be in high capacitance ceramics, primarily in the competitive arena between 22 to 470 microfarad. The majority of expansion will involve X5R ceramic dielectrics and specialty formulated X7R dielectrics.
Regional Expansion Analysis
We expect that the majority of capacity expansion will occur in the MLCC industry in Japan, Korea and Taiwan and will address the need for greater capacity in the high capacitance segment of the business. We expect the majority of capacity expansion to be aligned with the current and future needs of the wireless handset segment of the business.
Supply Chain Analysis: Materials Availability
MLCC manufacturers have extended their control over raw material development in ceramic dielectrics, electrode metals and termination metals for MLCC. The required “matching systems” among ceramic and metal are critical to develop and maintain profitably by MLCC manufacturers worldwide. This requires a suite of materials knowledge and expertise, which are learned through trial and error and therefore not all manufacturers produce MLCC in the same way and with the same exact materials, or the same number of stacks. Regardless, they all largely source the supply chain at the same points and through the same merchant vendors. Therefore, it is expected that each of these channels will benefit from capacity expansion in FY 2019-FY 2023.
• Nickel Electrode Powders and Pastes
• Ceramic Dielectric Materials
• Copper Termination Powders and Pastes
High Cap Versus Low Cap Revenue Analysis
In FY 2018 MLCC manufacturers continue to invest in high capacitance ceramics as a method by which the company can halt the continual decline in average unit price brought about by intense competition between Japanese, Chinese and Korean MLCC. One measureable criteria is the movement from picofarad to microfarad based MLCC by the major global high cap MLCC manufacturers over time, with the four largest MLCC manufacturers in the world periodically giving market analysts a percentage of revenues based upon MLCC capacitance value (i.e. above 2.2 microfarad) and clearly the revenue return on investment for all vendors was about 6% in additional global market share every five years of technology development. This resulted in the creation of an additional $10 Billion in value (FY 2018) in addition to the existing $4 billion in existing picofarad MLCC markets. Therefore, between 1993 and 2018, the value of demand for picofarad type MLCC has not really grown by very much, whereby, the demand for high capacitance MLCC has grown from $0 USD to $10 BB USD during the same time period. Therefore, with that type of visibility, the MLCC manufacturers will continue to move along this technology roadmap because it has been one of the most successful applications of nanotechnology of all time and will continue to be a critical aspect of the high-tech economy for the foreseeable future.
Therefore, what we expect between FY 2019 through FY 2023 is that 90% of global capex spending will be myopically focused on an attempt to continue the process of increasing capacitance in increasingly smaller footprints/case sizes and what’s more is that the development of chemistry and case size will largely be channeled toward the needs of the handset markets and not necessarily toward the needs of other segments.
Market Share Analysis: Maintenance and Roadmaps
The manufacturers of capacitors that have demonstrated the largest amount of growth between 1993 and 2018 have been manufacturers of high capacitance MLCC, or manufacturers who have yoked together multiple dielectrics through acquisition. However the strategy of investing in increasing capacitance in small case size packages was very successful for MLCC manufacturers in Japan (3), Korea (1) and Taiwan (2). It is highly unlikely that manufacturers of high capacitance BME MLCC will materialize from any of the specialty ceramic chip capacitor manufacturers, rather we expect that in specific areas of precious metal based MLCC that have been directed toward auto will have to convert to nickel in small batch processes. This is also a unique market opportunity materializing in the USA, Germany, France and Korea today.
Where Capacity Expansion is Expected: MLCC Dielectric Chemistry
The global market for high capacitance MLCC demands specific capacitance chemistry with respect to the dielectric materials that are required for the production of parts. The areas of specific capacitance expansion would be expected in X5R, Y5V and X7R dielectrics.
X5R High Capacitance MLCC
The key competitive area with respect to maximum capacitance per MLCC, coupled with change in capacitance with temperature is the X5R dielectric MLCC, which is not as stable as true X7R, but is acceptable in applications where the shelf life of the product is not more than three years (consumer audio and video imaging equipment, computers and some handset applications). X5R ceramic chemistry and supply chain is now among the most advanced expressions of nanotechnology n the world. This is where the higher capacitance breakthroughs in 220 to 470 microfarad will expand, making even smaller circuitry possible in multiple markets especially in all portable electronic devices.
Y5V High Capacitance MLCC
Regardless, the technology developments in Y5V ceramics moved very quickly so that higher capacitance models were available in a much more timely manner than had been consistent with global roadmaps of development. The ceramic Y5V technology began to displace tantalum and some aluminum capacitors in the 1993 to 1995 time range, primarily in computer, networking, and telecom segments, but never made any inroads post 2000 in wireless handsets. Subsequently two vendors that addressed this market were consolidated by a third in Japan, and this was soon followed by one of the market leaders withdrawing from the specific segment. The result of this was a market vacuum that still exists at the end of the March quarter of 2018.
X7R High Capacitance MLCC
The surprising aspect once again is that in true X7R high capacitance MLCC, the technology remains limited. This is obviously the area where future developments will be profitable for those who get to market first and the development of true X7R high capacitance products 22 µF and above could return hundreds of millions of dollars. The two reasons for this are as follows: X7R performance change with temperature is more closely matched to that of tantalum electrolytic, and it is the better balance between price and quality to the unstable tantalum supply chain. So this is where we would expect a significant amount of capacity expansion between FY 2018 through FY 2023, but of course, the technology is so difficult to emulate that a significant amount of money would be required to increase stacking capacity in X7R MLCC.
Additional Markets Impacted by Capex in MLCC
Gas Stabilized Furnace Vendors
The only noted bottleneck in MLCC capacity expansion is at the furnace supplier, which is the preferred supplier of high fire, atmosphere stabilized kilns used for the production of BME MLCC. Other vendors of atmosphere-stabilized kilns in the West have entered the market and alleviated the constraints experienced by the largest vendor to some degree. But more importantly, in Japan, in-house production equipment development is now standard and many devices are custom built. This trend will continue as dielectric layer thicknesses go below 1 micron to the atomic level.
Integration and Modularization Markets Outlook
The next generation product line presented here focuses on the history of passive component integration; and the advent and acceptance of modules, especially for LTCC (low temperature co-fired ceramic) antenna and FR4 laminate power amplifier applications in wireless handsets. Paumanok noted the history of the development of individual discretes into single-in-line (SIP) packages; dual-in-line packages (DIP), integrated passive devices (RC/IPD), and the development of the thick film quad and octal arrays. These integrated passive devices have found their need in printed circuit boards where volumetric efficiency was and continues to be an issue (handsets, notebook computers, digital cameras, handheld electronic games, MP3 players, PDA), and where a local proximity of capacitance and resistance functions available in one integrated package saves the customer on pick and place costs. It is noted that the proximity of passive components where integration is possible is typically located in the output and input ports of computers and handheld devices (USB, FireWire). The basic premise of integration was to save money on pick and place costs for board assemblers; and to increase throughput of manufacturing and reduce inventory costs. This concept of saving money on pick and place costs through integration of passive components, increasing throughput of manufacturing and reducing inventory and test costs was taken one step further through the development of LTCC and FR4 modules, which provided complete functional modules (antenna, power amplifier and engine control unit for example).
Summary and Conclusion:
Past market gaps and showstoppers in the MLCC supply chain are analyzed here and some key trends noted, especially that of a diminishing return on investment as higher capacitance is attempted in increasingly smaller case sizes. The capacity expansion in dollars over time has resulted in a decreasing number of units produced, although those units have increasingly higher capacitance value per cubic centimeter of available area. The supply chain has multiple disciplines associated with it that all need to expand in unison as they have done on three prior historical occasions, this includes ceramic materials, metal materials, furnaces and related equipment. Expect capacity expansion in MLCC to be selective with respect to chemistry and focus on the needs of the wireless handset industry in high capacitance MLCC going forward and will leave many segments, especially those exposed to palladium, having to move reluctantly to base metal solutions, or risk losing support, or at least risk having to pay increasingly higher prices amidst diminishing supply. There will also be more emphasis placed on integral and integrated passive devices as more OEMs realize how far off the roadmap the steering committee is when it comes to finding alternative capacitance solutions to ceramic MLCC for mass produced printed circuit boards. We expect some next generation designs to begin to incorporate on-chip solutions from silicon and the use of next generation integral passive materials to create the require capacitance, resistance and inductance of the future.