SPECK OF POWER
How a tiny chunk of ceramic material helps power electronics,
TOKYO— If store shelves don’t have the electronic device you’re looking for, the cause might lie in a chunk of ceramic less than a millimetre on each side.
It happened in Japan earlier this year when Sony Corp.’s PlayStation 4 suddenly became hard to find. A popular new game called “Monster Hunter: World” led to a surge of demand for the videogame machine. Engineers at Sony say the company couldn’t quickly make more because components ran short, especially the part called a multilayer ceramic capacitor, or MLCC.
Consumers never see one of these tiny components, but their smartphones have hundreds of them and their cars have thousands. The part, which costs less than a penny apiece, helps control the flow of electricity and stores power for semiconductors, a function without which virtually no electronic device could work.
Aproliferation of smart devices, factory automation robots and more sophisticated cars has lifted demand for the MLCC. A typical gasolinepowered car may require only a few thousand, but an electric car might need 10,000, industry experts say. “The i ndustry is going through tightness it has never seen before,” says SMBC Nikko Securities analyst Ryosuke Katsura. He says electronics makers accustomed to getting the part right away now have to wait six months.
Only a handful of makers, mostly Asian, produce the component. The top three companies — Murata Manufacturing Co., Samsung Electro-Mechanics Co. and Taiyo Yuden Co. — own 60 per cent of the market, according to research firm Paumanok Publications. Samsung said in June that it wouldn’t be able to accept new orders “for a while.” Companies compare making an MLCC to making a piece of pottery. A material called barium titanate is mixed with a variety of organic solvents, then poured flat, with layers piled one on another like a tiny layered pastry. The product is then fired in a tunnel furnace.
Each maker has its own recipe — how much of which solvents to use, how long to mix the ma- terials, how to set the furnace — and most of that is secret.
“It’s impossible to steal the complete formula by studying our product because some materials get evaporated during the firing process,” says Katsuya Sase, head of electronic components at Tokyo-based Taiyo Yuden.
In recent years, companies have learned to make the ceramic bits ever smaller, helping smartphones get thinner. The smallest MLCC is less than a quarter of a millimetre on each side, a barely visible speck.
The big makers of MLCCs are responding to the shortage by investing more in the component. Kyoto-based Murata, which makes many electrical parts and batteries, doubled company-wide capital investment to more than ¥300 billion, or about $2.7 billion ($3.57 billion Canadian), in the year that ended in March.
It plans to invest more this year and add 10 per cent to its MLCC capacity, which already tops 1 trillion units a year.
Murata’s share price has risen about 30 per cent since late April, giving it a market capitalization of nearly $40 billion. Its shares rose 7 per cent in midJune when it said it was asking customers to pay more for MLCCs, the first price increase in 18 years. Taiyo Yuden shares are up more than 50 per cent since late April.
“Demand during the internet bubble around 2000 was mostly from personal computers and cellphones, but what we have today is a much wider range of devices, such as smartphones, cars, smart devices, data centres and equipment for telecommunication base stations,” said Shoichi Tosaka, Taiyo Yuden’s chief executive, in May.
Some analysts say demand might have peaked because the growth rate of smartphone sales has flattened. U.S.-China trade tensions could slow the global economy and reduce Chinese exports to the U.S. of electronic products that use MLCCs. Still, these analysts say the tight supply of the parts is likely to last another 12 months.
That is forcing electronics makers to alter their usual practice of keeping on hand only the amount of MLCCs they need right away, say people in the industry. Normally, a large inventory of parts is a risk because a product might fail or the economy could cool down. But now, the bigger risk is getting caught short, so companies are building up stockpiles of several months’ or even a year’s worth of the component.
The cycle of shortage followed by over-ordering has long whipsawed markets for hightech components, including the silicon wafers used to make semiconductors. “MLCC buyers are confident that competition for the component will remain fierce because demand from car makers who need to build smart cockpits and better in-car entertainment systems on their vehicles wouldn’t go away anytime soon,” Ace Research Institute analyst Hideki Yasuda said.
Some electronics executives are adding the personal touch in a bid to ensure supply. CEOs usually leave parts procurement to lower-ranking executives, but in May the head of Taiwan-based electronics assembler Pegatron Corp. joined the company’s head of procurement in visiting Murata, say people who saw the visit. Pegatron was seeking Murata’s support for securing MLCCs for the second half of this year when demand peaks, they say.
“MLCC buyers are confident competition for the component will remain fierce.” HIDEKI YASUDA OF ACE RESEARCH INSTITUTE