Yageo CEO Chen Taiming said yesterday (5th) that MLCC industry has been chaotic for a long time, leading to withdrawal of the spontaneous production capacity expansion from the manufacturers in Japan, South Korea and Taiwan; while the price of MLCC products used on EVs are usually three to four times than that of 3C products, and the Japanese manufactueres would not regress to pick up the middle end markets. As a result, the demand and supply gap of MLCC will continue until 2019.
Last year, Chen Taimingreleased the news of cutting 50% of MLCC inventory on the board meeting, resulting in MLCC stock shortage for over a year.Until May this year, MLCC order shipment of Yageo doubled, while resistors tripled. After yesterday’s shareholders' meeting,Chen Tai Ming predicted that the gap between supply and demand of MLCC will last until 2019.
Chen Taiming reckoned, due to the transformation of automotive industry from combustion engine to hybrid electric vehicles, the demand of MLCC would not only increase 10% or 15%, but double or triple, moreover, their price is 3 or 4 times higher than 3C products. We can see in Murata’s products portfolio, the proportion of high end products to medium end is 7 to 3; the high-end products remain as the main source of profit, while the medium end products barely make any profit. As the industry itself is not healthy, manufacturers are not able to make money from the medium-end products.Murata is not the only one that opt to automotive MLCC, Yageo is transforming too. Chen Taiming believes Japanese manufactures would not repeat the same mistake to regain the medium-end products market, what they are doing can be considered as spontaneous capacity control.
YageoChen Taiming: price increasesteers resistor and capacitor market back to normal
Chen Taiming also said that the high capacity, small size products use similar equipment and materials with medium end products, the difference lies in the process and powder composition. As the Japanese have their own formula, their pace is much faster. Theoretically, high-end products have 30% higher profit margin than that of medium-end. Assume the price of a high-end capacitoris 100, the medium-end capacitor accordingly should be 60 to 70. However, due to the unhealthy industry, the price drops to 10, we are struggling with it, yet currently it is still just 20 to 30.
As for the resistors, Yageo faced an annual price-cut of 20%, the profit was so low that even the red supply chain couldn’t gain any profits. This is the same case at the moment. Although there is no killer application, yet the upgrade of each new applicationleads to the increasing demand of MLCC, so as for the resistors.As the resistors production capacity hasn’t been expanded for a long time, the market doesn’t have enough suppliers. Pushed by the market demand, resistor industry starts to pick up the development pace.
Japanese manufacturers stop taking orders of some parts before March next year. Those orders will be shifted to manufacturers in Taiwan
A major Japanese manufacturer released the news of reducing the production of about 2500 MLCC model by end of March next year; the shipment of those products will stop by March 2020. The models involved accounted for 25% to 30% of its overall production capacity. Yageo CEO Chen Taiming said, after the deduction of about 20% to miniaturization, the order spillover will be transferred to Taiwan, and only Yageo has the technology to take some of the product specifications.
The daily production capacity of Japanese index large factories is about 120 to 130 billion pieces. Chen Taiming said that Japanese companies including TDK and Murata are switching production capacity. Recently, one of the Japanese manufactures sent a notice to customers, which stated that they would stop the production of about 2,500 material specifications by March 2019, and their shipment will be discontinued by March 2020.With this strategy, Japanese manufacturers lobbied customers to shift from traditional MLCC to miniaturization. It is estimated that the ratio of miniaturization will not exceed 20%, as he conversion requires certification and the entire printed circuit board (PCB) needs to be redone. "If it is so easy, stock shortage would not have dragged for so long!"
Chen Taiming believes that these material reductions account for about 30% of the Japanese production capacity. After deducting the ratio of miniaturization, the spillover orders will be transferred to Taiwan, and only Yegeo are qualified to take over the production of someproducts, such as X5R's 0402 and 01005.
Chen Taiming said that the outside world only focuses on price increase, which is only a short-term supply and demand phenomenon. Yageo has the widest channel in the world, and its customer structure and product portfolio are completely different from its competitors. At present, the ratio of high-end products in Europe and the United States is rising, which accounts for 40% of the orders. Among the orders from China, the order for high-end products account for more than 50%. This is the main reason why the gross profit rate of Yageois significantly higher than that of its peers.
Yageo’sEMS customers mistakenly believed that Yageo gave priority to mainland dealers. Chen Taiming refutes by saying that Yageo’s long-term distribution and direct sales ratio has not changed much. European and American customers choose direct sales and distribution in parallel, while direct selling is the major way in Asia, and distribution is mainly used in mainland China. Its customers include mainstream companies such as Bitmain, Huawei, BYD and Xiaomi.
Yageo recently announced that its acquisition of US antenna giant Pulse for NT$22 billion. Chen Taiming said that you could see Pulse products in the BOM of Tesla, Google, Cisco and Amazon. The acquisition of Pulse is to change Yageo’s image as pure OEM. The Yageo wants to go abroad, therefore, wants to play the World Cup, it is necessary to “design in”from the mainstream market in Europe and America.
