Lead times for multilayer ceramic capacitors (MLCC) have stretched to as long as 24 weeks, making them about three times the production lead time of 8 weeks. Utilisation rates at Murata and Samsung Electro-Mechanics, ranked first and second globally, have been stuck in the 90 percent range, but leading companies are concentrating production on products for artificial intelligence (AI) servers. That has also created a spillover effect, with orders for general-purpose products flowing to lagging companies. The securities industry says “the real supply shortage has not yet begun.”

According to the industry, Taiwanese distributor Future Electronics put Samsung Electro-Mechanics’ MLCC lead time at up to 24 weeks. Another Taiwanese distributor, Nichidenbo, presented supply lead times of 14 to 16 weeks for high-end MLCC. Supply lead time refers to the time from when a customer places an order until it receives the goods, while production lead time refers to the time it takes to make the product at a factory. With production lead time at about 8 weeks, it effectively takes 2 to 3 times longer to receive supply. It also means distribution inventories have fallen to a very low level.

Utilisation is also nearing its limit. iM Securities estimates first-quarter utilisation at 92 percent for Samsung Electro-Mechanics and 95 percent for Murata. Samsung Electro-Mechanics’ inventory days are around 30, below an appropriate level of 40 days. Demand appears to be coming in with no room for inventory to build, despite high utilisation. In a recent earnings release, Samsung Electro-Mechanics said, “Supply and demand are quite tight, but it is not a perfect shortage,” adding, “We are watching the leading company (Murata)’s pricing decisions.” It means lines are full enough to allow a strategy of selectively accepting orders with higher profitability.

Unlike past upcycles, broad-based panic buying has not yet emerged. In 2017 to 2018, fear that MLCC shortages could lead to disruptions in set production fuelled buying, and in 2021 to 2022 competition among Chinese smartphone makers seeking to secure market share vacated by Huawei, weakened by sanctions, triggered panic buying. Currently, distributors raised prices for some general-purpose MLCC in early March, but it is not at the level of full-scale panic buying.

One factor behind that is that the main source of demand has shifted to the AI industry. According to iM Securities, smartphone and PC makers, which led past panic buying, are sensitive to inventories because product life cycles are short and demand fluctuates widely with macroeconomic conditions. AI customers, by contrast, move based on system roadmaps spanning 2 to 3 years, giving them a longer time horizon. The analysis is that set makers and distributors are still at a stage where they do not yet feel supply risk.

Conversely, that also means there is room for further gains ahead. As an exception, Apple is known to have asked major MLCC makers for long-term supply agreements (LTA) at the end of last year. An interpretation has emerged that Apple, which is most sensitive to supply chain management, has moved to prepare in advance.

◆Orders spill over to laggards as leaders focus elsewhere

As orders concentrate on the leading companies, a spillover effect is also occurring. As Murata and Samsung Electro-Mechanics focus production capacity on higher-margin MLCC for AI servers, unmet orders for general-purpose MLCC are shifting to secondary suppliers. MLCC for AI use have production lead times 2 to 3 times longer than general-purpose products, so the volume of general-purpose output leaving the leaders’ lines is bound to grow. It is similar to the structure in the memory industry in which Samsung Electronics and SK Hynix prioritise high bandwidth memory (HBM).

A representative case is Taiwan’s Yageo. According to iM Securities, Yageo’s utilisation rate for commodity passive components rose from 65 percent in the third quarter of last year to 75 percent in the fourth quarter and 80 percent in the first quarter of this year. The firm said improving utilisation despite sluggish demand for IT sets is indirect evidence that general-purpose demand vacated by leading companies is flowing to lagging players. It analysed that the point when utilisation among Greater China makers exceeds 90 percent will be a sign of an industrywide supply shortage.

The third quarter is the period most likely to see panic buying driven by supply shortages. iM Securities sees it as a time when demand growth for server MLCC, driven by a ramp-up of Nvidia’s next-generation AI platform Vera Rubin, coincides with seasonal demand in the peak IT season. It also cited as an upside factor that Apple’s production plan for the second half, which uses many ultra-small, high-capacity MLCC, is strong.

The key is Murata’s pricing policy and the point when utilisation at Greater China makers breaks above 90 percent. If those two conditions overlap, the MLCC cycle is expected to enter a full-fledged uptrend. iM Securities said, “In our experience, there has been no upcycle without panic buying,” and added, “The fact that not even controversy over double booking has begun means there is still room for MLCC makers’ profit consensus to be revised upward.”