The global MLCC shortage in 2018: What are your options?
The state of the market
The global shortage in Multi-layer Ceramic Capacitors (MLCCs) is creating extremely challenging market conditions for the electronics industry.
There’s an industry-wide shortage of MLCCs, and lead times, where quoted, are up to 50 weeks on new orders. In many cases, manufacturers have increased prices with immediate effect and have even applied price increases to back orders, regardless of when they were placed.
We’ve seen manufacturers move from extending lead times in 2017 to imposing strict allocations over a defined period in 2018, based on their capacity and the distributor’s historical backlog. Many manufacturers are no longer accepting new purchase orders from customers and in some cases are even cancelling existing orders.
Companies of various sizes are struggling to get their hands on MLCCs, which could result in production slowing down or even stopping. We’re already receiving anecdotal evidence of companies having reached line-stops because they can’t get the MLCCs to assemble their printed circuit boards.
Customers might consider resorting to non-franchised channels. But this comes with the increased risk of receiving counterfeit components which could lead to product failure and no recourse to the manufacturer.
The current market conditions are having a dramatic impact on customers, from both a manufacturing and a cost perspective.
And the situation is unlikely to improve for the next 12 to 18 months.
It’s not our intent to cause alarm. It’s our aim to provide you with information and help guide you through your options in this challenging environment.
Why the MLCC shortage is happening
The increase in demand for MLCCs in smartphones, portable computing and the automotive industry are the main drivers of these market conditions. The increase in demand from these markets has been considerably higher than manufacturers had previously anticipated.
While a car powered by an internal combustion engine has an MLCC count of around 2,000, the new Tesla Model 5 is nearer 10,000. And between the iPhone 6s and the iPhone X, there was a jump in MLCC count from 500 to 1,000 per handset!
Although the development of the electric vehicle has played a role in the global shortage, the main demand is coming from mobile communications and computing devices. The increased functionality of these devices, combined with the need for portability, means the demand for high capacitance in small case sizes has increased, and will continue to do so.
So far, the situation has largely been driven by genuine demand as opposed to panic-buying, though it’s likely that mobile handset and automotive manufacturers will do what they can to shore up inventory to ensure continued production.
On the supply-side, there are a number of factors contributing to the current situation.
Generally speaking, when prices are driven down on commoditised components, top tier producers often shift their focus to higher-margin opportunities. When this happens, and top tier producers move a product to a later stage in its life cycle, the slack is typically picked up by lower tier producers who can still make sufficient gains from these lower-priced products.
However, at the higher end of MLCC production, the technical challenges involved in the manufacturing process have prevented lower tier producers entering the market.
The manufacturing process for MLCCs (layering microscopically thin alternating layers of ceramic and metal) is complicated and results in varying yields, which poses challenges to profitability for less developed manufacturers. As a result, there are still only a small number of manufacturers who can achieve the highest levels of capacitance in this fashion.
This has created a significant barrier to lower tier manufacturers. Previous decreases in prices prevented top tier manufacturers from investing further, and this, combined with the recent increase in global demand has resulted in supply falling behind demand.
The increase in demand, due to smartphones and electric vehicles means other sectors are feeling a squeeze on availability and delivery times, alongside price increases.
Manufacturers who can produce high cap MLCCs will, in due course, increase production capacity in response to the demand and increased pricing, but the time until shortages in the supply chain are overcome will be significant. Unfortunately, the component manufacturing business can’t move as quickly as the high-paced consumer electronics industry.
Overall, the situation has been described by some market analysts as the “perfect storm” of (economic) factors.
How long will the current situation last?
There is little sign of improvement in the next 18 months to 2 years. If anything, things look to be worsening in the short to medium term.
Some expect the shortage to last up for up to three years at least.
So what can you do?
Previously, when there’s been supply difficulties with a specific manufacturer, we would recommend looking to other manufacturers for an alternative product. However in the current market conditions it’s impossible to find availability on any direct alternatives as a short-term solution.
Because it isn’t going to get better any time soon, it’s advisable to consider alternative capacitor technologies and redesign products to minimise your exposure to the ongoing shortage of MLCCs.
If your design is reliant on MLCCs, you need to take action as soon as possible. And as such, it would be prudent to allocate engineering resource to consider redesign.
It’s important to gain a clear understanding of the potential impact on your current design cycle. And also to assess the opportunity in the medium term by considering MLCC downsizing or the possible application of polymer capacitors.
All of these options will be application dependent and will require weighing up a number of important criteria.
What's the alternative?
We recommend polymer capacitors as the most viable alternative to MLCCs.
While tantalum capacitors could provide a suitable alternative in some applications, the lead times are now extending on those too. And as a result, they are rapidly becoming a less viable option.
In this article, we’ll guide you through the technical considerations to determine whether polymer might be a viable solution for your application:
If you’d prefer to discuss your precise requirements with a technical expert, you can get in touch with our capacitor experts in your local language.