How to Properly Navigate the MLCC Market and Minimize Your Chances of Disruption

Multilayer Ceramic Chip Capacitors (MLCCs) are one of the most widely used electronic components in the world, with a global consumption of between 3-4 trillion pieces per year. From 2016 to 2018, the MLCC market experienced one of the most significant shortages in history, with some manufacturing lead times extending out 52 weeks or more. The structure of the industry still has the potential for future supply challenges. It is important to be prepared for this possibility.


MLCC worldwide volume has grown an average of 10-15% per year for the past 20+ years. While MLCC growth closely follows semiconductor growth, there are additional factors driving usage even higher. MLCCs’ small size, low cost and high performance make them effective in electrical circuits. Technology improvements in size, capacitance and voltage ratings have allowed MLCCs to cross-over into application spaces typically occupied by other dielectrics. Lastly, MLCC usage per device continues to climb.
Key growth markets include smartphones, automotive, computers, IT and telecom. Major trends such as 5G, the Internet of Things (IoT), cloud storage, hybrid and electric vehicles, autonomous driving, smart factories, home automation, wearables, drones and satellite launches will all drive MLCC usage higher. 
Smartphones are the largest market for MLCCs, consuming more than 40% of the world's supply. While the smartphone market has been down recently, this could change with the dawning of the 5G era. 5G base stations will contain many more MLCCs versus 4G/LTE, and the number of base stations will increase dramatically due to the shorter range of 5G signals. 
Each new generation of smartphone utilizes 10-20% more MLCCs per device, and modern smartphones already have over 1,000 MLCCs inside. Because the MLCC sizes they use are quite small, this segment remains the top priority for the largest MLCC suppliers in the world.
The automotive market is a large and fast-growing user of MLCCs. Connected, electrified, and autonomous vehicle trends are all driving MLCC usage at a faster rate than the electronics market in general. As vehicles move from an internal combustion engine (ICE) to a battery electric vehicle (BEV), the number of MLCCs increases, often more than 5x. TESLA's Model 3 contains over 9,000 MLCCs and their Model S & X each have over 10,000 MLCCs.  
While the number of BEVs sold worldwide are still quite small, as the technology improves, charging infrastructure expands, more models are offered and the cost decreases, BEVs will continue to grow at a much faster rate than the overall automotive market. This growth will drive increased MLCC usage even if total vehicle sales remain flat. 


On the supply side, there are several factors contributing to shortages. Intense competition has reduced profitability in the business. Capital costs to invest in new equipment are high and the material and process technology required to make high-quality MLCCs is very specialized. These barriers explain why a new MLCC producer did not emerge during the 2016-2018 shortage. 
Because of the economics, the largest Asian-based MLCC producers changed their product strategies and began exclusively focusing on small- case size products, EIA sizes 0402 and smaller. Many products sold in massive quantities are now designated as "legacy" with designations of "NRND" (Not Recommended for New Designs) or "EOL" (End of Life), helping make the MLCC shortage even worse. Customers are being forced to downsize to smaller, potentially less technologically capable MLCCs because suppliers can produce them in higher quantities at higher profits. 
Confusing this picture is the current market correction in components, where some Asia-based MLCC producers are delaying the timing of the EOL activity. However, it is highly likely the smartphone-focused MLCC producers will continue in that direction long term as they are able to fill their existing capacity when the next up-cycle begins.
The good news is that while suppliers are cautious, they are investing in the business again. Some prices were adjusted during the shortage, which allowed for new investment to support future demand growth. The health of existing MLCC suppliers is critical to the electronics supply chain, as the high barriers to entry limit new entrants.


The industry is adding new capacity, but not necessarily at a rate that will keep up with future demand and the next up-cycle. Here are some steps you can take to minimize the impact on your business.

Partner with the right suppliers. Adding MLCC capacity is expensive and each MLCC supplier has their own focus and experience. Suppliers driving customers to downsize by definition are highly focused on smartphone and consumer markets and are selling mostly commercial-grade products. In contrast, there are suppliers with a primary focus on automotive, industrial and specialty markets that are investing in large case size capacity. Ensure that your needs and focus are aligned with your suppliers.
In addition, ensure your suppliers are reliable. Choose suppliers with high levels of service, high quality, and a history of meeting delivery commitments. During the shortage many MLCC suppliers consistently missed their own promise dates while others delivered on their promises, even while running at 100% capacity utilization. 
Provide long-term visibility into your supply needs. Many OEM's ran into trouble during the shortage as a result of complicated supply chains and lack of robust ordering and forecasting tools. In many ways, supply of common components like capacitors was taken for granted, but the shortage of 2016-2018 provided a strong reminder that demand visibility is critical through the entire supply chain, which can often involve 3-5 different companies. Once a shortage starts, it is virtually too late. Ensure that your process for flowing down orders and forecasts is accurate, stable and long-term. Most suppliers prefer a 12-month view, particularly for automotive markets. 
While we cannot predict the future, the long-term dynamics of the MLCC market point to strong future growth and a limited supply base. This should not be taken for granted, and with the proper alignment and supply chain visibility you can help minimize your chances of disruption.

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