Source: Digitimes news
A continued rally in MLCC prices has been pushing up prices for other passive components including capacitors, which Lelon Electronics specializes in. For Lelon president Wu Chih-min, it is time for EMS and ODM/OEM providers to seek higher contract quotes from their brand customers, ending a low-price business model that has left many in the supply chain struggling.
In a recent interview with Digitimes, Wu shared his opinions on the ongoing passive component price growth and Taiwan’s role in the global marketplace amid sustained demand and tight supplies.
Q: The supply of passive components has fallen short of demand by about 30%. Many market observers attribute the supply shortfall to Japan-based suppliers’ increased focus on automotive and other niche-market segments. As Lelon also supplies capacitors for automotive applications, what are your thoughts?
A: I don’t want to comment on how Japan-based passive component vendors’ supply strategies affect the global supply of passive components for consumer electronics devices and other mass-market products. However, there’s one thing I know for sure is that passive component demand for automobiles will ramp up.
Nevertheless, I don’t think the current passive component consumption for automotive is large enough to cause the 30% supply shortfall.
In the capacitor market, the tight supply is not caused mainly by Japan-based suppliers’ capacity allocations. The tight supply of capacitors is more about the shutdowns of many suppliers, mostly China-based ones, engaged in the manufacture of low-priced products. China’s stricter crackdown on local factories unable to meet the environmental standards set by the central government has already forced many closures of passive component firms struggling to gain profits from the sale of their low-priced products.
However, there are still 200-300 China-based companies capable of producing general-type aluminum electrolytic capacitors, as entry barriers are low. Lelon and other Taiwan-based capacitor suppliers have moved to specialize in niche-market products.
In the MLCC segment, China-based players continue to lag behind Taiwan-based ones in terms of technology. The number of the world’s major MLCC suppliers is relatively small, with Japan-, Korea- and Taiwan-based firms dominating the market.
One main reason behind the few MLCC vendors worldwide is that obtaining equipment for making MLCCs is difficult. There is no equipment companies based in China or Taiwan capable of making MLCC production tools. MLCC firms can only source equipment from a few suppliers in Japan if they plan to expand capacity, and the delivery times for MLCC production equipment are being extended. As a result, the global supply of MLCCs remains tight, sending component prices up.
Q: Taiwan’s passive component companies generally have low gross margins. Do you think it is appropriate for them to raise their prices amid the component shortages?
A: I’d like to echo the recent remarks made by Walsin Technology president Ku Li-chin. Ku commented on the recent passive component price rally saying that passive component prices had long been too low and undervalued before picking up.
Passive component makers used to bargain for lower prices on raw materials as well as other methods to cut their manufacturing costs, in order to gain as much profits as possible from the already low prices their EMS clients would accept. For those passive component makers which have their manufacturing sites mainly in China, rising labor costs and the country’s stricter environmental control have had put further pressure on their businesses.
Here comes the tight supply, resulted from passive component suppliers’ cautious attitude toward capacity expansion, and rising costs of raw materials such as aluminum foil, passive component companies are indeed under pressure of growing costs and have to raise their product quotes to survive.
I believe it is also appropriate for Taiwan-based contract device makers to bargain for better prices with their brand customers. While suppliers of passive components and other components and materials no longer can afford to run their businesses with low profits, it is time for EMS and ODM/OEM providers to bargain for higher contract prices to bring an end to the traditionally low-cost supply chain.
China’s stricter environmental control is also making a positive contribution to the development of the contract manufacturing business. The cost of running an environmentally-compliant factory cannot be low. As a result, factories require reasonable contract prices to stay alive.
Q: Passive component makers are generally upbeat about demand for automotive electronics. Since Japan-based players continue to dominate the market, can Lelon and other Taiwan-based passive component firms also be among the beneficiaries?
A: Lelon is engaged in the supply chain of China-based vendor Huawei supplying solutions for applications ranging from telecom equipment to car electronics. Our capacitors were first adopted by automotive electronics components companies, including Delphi, Visteon, Bosch and Continental.
But it was difficult to enter the automotive market. In the beginning potential clients asked Lelon to have its capacitors pass AEC-Q200. We conducted a lot of tests on our products for a few years, but no orders came.
But when automotive market saw a supply disruption following the 2011 earthquake and tsunami in Japan, tier-1 parts and components suppliers realized that Lelon could fill in the supply gap.
The car market is relatively closed, unless the supply chain has problems. For startups, it is also uneasy for them to enter the market. Lelon had long been vying for orders from Europe-based car vendors, which regard our bigger Japan-based companies as their preference. Lelon has demonstrated its manufacturing capability and become a second-source supplier of those which intend to reduce their reliance on Japan-based companies for the supply of passive components.
Q: Would you share with us Lelon’s future target markets and business directions?
A: Capacitors are a vital component for electronic products. Aluminum capacitors are small in size, large in capacity and low in costs, and are being applied mainly to applications such as networking and telecommunications, automotive electronics, industrial and consumer electronics. Solid capacitors have high stability and longevity, and come with large capacity and fast charge-discharge characteristics that are demanded by applications such as high-end servers, motherboards, graphics cards and fast charging devices.
Lelon was the exclusive capacitor supplier of Bitmain in 2013. We continue to explore new markets for our products, and remain focused on the development of solid capacitors and SMD (surface-mounted device) products.
There will be more high-end market segments and new applications that capacitors can be used for. For example, demand for new energy vehicles and security systems has emerged and will grow gradually.
Among them, the fastest growing ADAS market coupled with the improvement of driving safety and environmental protection requirements will be driving electronic control unit (ECU) demand for automobiles. Automotive aluminum capacitor demand will be increasing.
Lelon is also gearing up for the availability of 5G. With China, Europe, Japan, Korea and the US stepping up their 5G base station construction and deployments, aluminum capacitor demand for 5G looks promising.
Lelon will complete the construction of a new factory in Huizhou, China by the end of third-quarter 2018. The company will also continue expanding solid capacitor and SMD capacitor production capacities.
In addition, Lelon has developed a new capacitor series for 48V server systems with volume shipments scheduled for later in the second half of 2018. The company is also in the development of new products for high-performance computing, fast charging and network communications.
featured image: Lelon president Wu Chih-min Photo credit: Bryan Chuang, Digitimes, July 2018