Compared with Taiwan passive component manufacturers Guoju, Huaxinke, Heshentang, Qilixin, Dayi, Xinchang Electric, R&D Trade, Miwangshi, Dafang and others, they benefited from the shortage of stocks in the market. The stock prices have soared recently. Taiwan foundry industry players are unwilling to raise prices in the face of downstream customers. Upstream passive components have shortages, production costs have increased, and profits have been seriously eroded. The OEM said that it was thought that the out-of-stock passive components were a short-term phenomenon, but it did not expect that it would last for such a long time. It was reported that the small OEM was facing a crisis of material cutoff, and even had to buy passive components at a high price in the spot market, otherwise the goods would not be delivered, and the disaster was quite tragic.
Due to the long-term supply gap in laminated ceramic capacitors (MLCC) and chip resistors (RC), prices have risen frequently, which has led to the performance of passive component factories such as Guoju. Guoju's revenue increased by 99% year-on-year in April. Recently, it has been reported that passive component factories no longer announced price increases, but adopted the bargaining method of individual customers, and the price increase of some specifications of products is even as high as 70%.
Asus CEO Shen Zhenlai recently said that the supply of passive components is tight, and with the exclusive share of a few operators, the price has increased by more than 1 times, which puts great pressure on OEM industry. Asus is a brand factory, and through material management such as passive components, the feeling is not as strong as that of OEM factories. Although there is no problem with material cutoff at present, large OEM manufacturers must accept price increases and negotiate with passive component factories as soon as possible to negotiate the supply contract for the second half of 2018. As for small OEM manufacturers, they are facing material cutoff crisis and are forced to go to the spot market to buy passive components at extremely high prices.
Large electronics OEM factory said that different components will have problems with shortage of stock and shortage of materials. OEM factories have the ability to resiliently allocate to avoid impact on production lines. Taking passive components as an example, the price fluctuates greatly in 2017. Fortunately, it is the off-season of the industry, and the shortage of materials has little impact and will not only purchase from a single supplier. Currently, we are negotiating procurement plans for the second half of the year with Japanese, Taiwanese and mainland passive component factories. In the future, new product design will also cooperate with customers to reduce the use of passive components.
medium-sized OEM factory has a supply contract with the passive component factory, and there is no material cutoff at present. However, due to the sharp rise in the price of passive components and the gross profit margin is reduced, OEM factory must increase revenue and reduce expenditure, and hope that the customer will have a hard time and agree to increase the OEM price. However, the possibility of customers accepting price increases is low, and OEM industry is under great pressure, especially in the procurement of passive components, there is no room for bargaining. For medium-sized OEM factories, it is a blessing that they have not been cut off.
Industry news has been reported that after the 2018 Lunar New Year, some small factories could not get the goods, and the situation was very miserable. We must go to the spot market to find spot stocks that meet the specifications, but the price in the spot market is very expensive, and we can only hold on now. We hope that the supply and demand situation can improve after the third quarter.
At this stage, the electronics procurement department is trembling. If you can’t get the goods or the price is unreasonable, the procurement department will become the company’s cannon fodder. The foundry industry pointed out that the use of passive components of automotive electronics cannot be compared with PC/NB and smart phones. Why are there serious stock outages? Moreover, the trend of Japan’s Murata withdrawing from the market still needs to be clarified.
Most Taiwanese factories would not have adopted Murata's MLCC. Why did Murata withdraw from the market cause the price of Taiwanese MLCC to rise sharply. Passive components operators pointed out that Taiwan and Japanese have many common specifications, and the only difference is that Murata's price is higher, but once Murata reduces production, the entire market supply will decrease, and when demand remains unchanged, there will be out of stock.
OEM said that the shortage of components including DRAM is a short-term phenomenon, but this time the out-of-stock of passive components lasted for so long, which was unexpected. Most OEMs did not have the inventory of passive components. Once the stock was out of stock, they would be messed up. The market began to be reluctant to sell and took the opportunity to raise prices. Customers who need to purchase repeatedly placed orders, forming false demand.
Since almost all passive component factories are expanding production, it is difficult for OEMs to accept that passive components will be out of stock until 2019. OEMs said that although the cost of passive components accounts for about 1 to 2% of the bill of materials (BOM), this wave of doubled is 2 to 4%, which seems not high, OEMs' gross profit is only "three to four" or even less, and the increase in passive components almost consumes the profits of OEMs.
Since 2017, the low-capacity MLCC has increased very little, and the high-capacity MLCC has increased a lot, with an average increase of 15~20%. For foundries, the average cost increase is limited. However, in 2018, the MLCC price continued to rise under the high base period. If the price does not fall back throughout the year, the average cost will be much higher than in 2017.
OEM industry insiders said that the significantly increased cost of passive components will force orders to stop production of products with low gross profits, otherwise they will lose money to do idle work. After the customer's products are suspended, if they are willing to increase the OEM quotation, they will be re-shipped into the production line. As for niche products with high gross profit, they will not be affected by the price increase of passive components and will still be produced normally.
OEM hopes to improve profits by optimizing product portfolio. Although revenue scale has shrunk, financial improvements will help the industry return to a healthy state. Among them, software and services will be the goal of manufacturers' efforts. As long as the value of software and services is fully utilized, the impact of passive component price increases can be offset. From a positive perspective, the price increase of components is actually an opportunity for the upgrading and transformation of the OEM industry.
Some Taiwanese OEM factories sign production contracts with large customers for more than one year. Any cost changes before the expiration of the contract have nothing to do with the brand factory. OEM factories must ship the goods even if they are stubborn. Unless everyone cannot ship the goods, the brand factory may renegotiate the contract and quotation with the OEM factory. The OEM industry bluntly stated that when components are out of stock, everyone is eager to ask for them, and when there is oversupply, everyone doesn’t want to lose money and sell them. Now passive components are the seller’s market, which does not mean that they will never reverse.
In the face of doubts from the OEM factory, the Taiwanese passive component manufacturer said that as a component supplier, it will try its best to meet the needs of customers. At present, the equipment machines ordered in 2017 have been installed one after another, with at least 5 to 10% of the new production capacity every quarter. For products with very scarce specifications in the market, manufacturers will also increase their production capacity.
