Passive components are still in the cold winter and the dawn is still to come

Recently, the inventory status of Taiwanese passive components has once again become the focus of the market and an opportunity for stock prices to rebound. However, from the perspective of supply and demand, we may have to wait a little longer to return to the glory of the first half of 2018.

Industry insiders said that the passive component market reversed in the second half of 2018, and the main reason was the sudden freeze in downstream demand. This phenomenon was completely beyond the expectations of manufacturers, especially for downstream distributors. In order to meet the demand, they had to increase the inventory level significantly, but suddenly the demand froze, and the full inventory that was originally prepared became a hot potato overnight, and clearing the inventory at a low price became an inevitable result.

The key indicator is the utilization rate

Chen Taiming, chairman of passive component manufacturer Yageo, pointed out at a shareholders' meeting a few days ago that everyone is very concerned about the second half of the year, but he personally feels that the trade war has had a huge impact on downstream confidence. 2018 was bright before the war, including overall applications and market confidence, which were very strong. However, from August and September 2018 to the fourth quarter, the impact of the trade war began to intensify, which was beyond the expectations of many people, and the overall situation was worse than expected.

Chen Taiming said that the ideal overall inventory level should be around 4 months, but at present, distributors are quite conservative. Most of them used to have 3-4 months of inventory, but now some people are only willing to keep 1 month of inventory.

However, according to the latest industry conditions, the inventory of passive components has returned to a relatively low point. At the same time, because we have entered the peak season for smartphones, there is a shortage of some specifications of products with large usage in some mobile phones. Manufacturers have begun to increase the capacity utilization of some products. It is understood that the plan of leading manufacturers is to increase the overall capacity utilization rate to around 50%.

Industry insiders said that, to be honest, a 50% capacity utilization rate was not a high level for passive components in the past, but now no one is willing to stockpile inventory, so orders are placed in a rush order. Many orders are placed to manufacturers and require delivery within a week. In other words, this puts the manufacturer's production flexibility to the test.

Industry insiders pointed out that if the capacity utilization rate of passive component factories can be increased to around 80%, it means that the overall market conditions have returned to normal economic conditions.

5G and electric vehicles are the driving force of future demand

Passive component manufacturers pointed out that, at present, there are two major driving forces for market demand, including 5G and electric vehicles. Among them, 5G is gradually entering the commercialization stage. In particular, according to the expectations of various manufacturers, the use of MLCC (multilayer ceramic capacitors) in 5G mobile phones will grow by more than 10-20% compared with 4G. In other words, as 5G mobile phones gradually increase in volume, it is expected to drive a new wave of growth for passive components.

According to a market research report by a research institute, it is estimated that the MLCC usage of sub-6GHz 5G mobile phones will be about 10% higher than that of 4G mobile phones, and the MLCC usage of mmWave 5G mobile phones will increase even more, by about 20-30%. Overall, the MLCC usage of the 4G version of the iPhone has exceeded 1,200 pieces, and the usage of the 5G version is expected to reach 1,500 pieces.

Industry insiders pointed out that among the major global mobile phone brands, except for Apple, most other brands have launched 5G mobile phones. Although it is still the transition period between 4G and 5G mobile phones, looking forward to 2020, research institutions also expect that 5G smartphones will have a chance to account for more than 15% of the overall mobile phone market penetration rate. In other words, there will be more than 200 million 5G mobile phones next year, and the demand for passive components is also expected to continue to ferment.

Another demand driver is electric vehicles. Industry insiders pointed out that according to statistics, each pure electric vehicle requires an average of 17,000 to 18,000 MLCCs, which is nearly six times the 3,000 to 3,700 MLCCs required for each general fuel vehicle. In addition, according to Frost & Sullivan's forecast, by 2020, there will be 2.41 million electric vehicles, and the demand for MLCCs will grow significantly.

Moreover, in terms of manufacturing process, the high-specification MLCCs used in electric vehicles are of higher specifications than those used in mobile phones, so they will consume more production capacity. In addition, even if they are not pure electric vehicles, with the current trend of increasing automotive electrification, in other words, the automotive market will be another larger market than mobile phones.