[Image above] Look at the guts of most any modern electronic device and you are bound to find multilayer ceramic capacitors. Credit: Mike; Flickr CC BY-SA 2.0
Did you know that some 2.7 million people—4.7 percent of America’s Netflix users—still use the company’s snail-mail DVD service? And perhaps even more surprising is that most of these sans-streaming users don’t do so because they are limited by their broadband connection—they do it for Netflix’s extensive DVD library.
In our über connected, on-demand, nearly instantaneous digital world, this statistic surprised me. The fact that so many people still wait for a plastic disc ferried back and forth by the postal service to access the latest in entertainment kind of made my brain spin for a minute.
But I suppose sometimes it is not the most high-tech details that are most important.
Today, modern digital devices seem to dominate our daily lives—devices connected to us, connected to one another, and connecting us to one another.
And yet, despite all the high-tech components within modern digital devices, it turns out that the availability of some of today’s most in-demand devices all comes down to a relatively low-tech part that costs less than a penny.
Like I said, sometimes it is not the most high-tech details that are the most important.
Those parts are multilayer ceramic capacitors (MLCCs), tiny components that regulate energy flow through a device. MLCCs are composed of alternating layers of metallic electrodes and dielectric ceramics, and they are found in nearly every electronic device you can imagine.
“MLCC are considered the ‘workhorse’ of the electronics industry,” explains Dennis M. Zogbi, president and CEO of market research company Paumanok Publications, in a 2018 TTI article. “They are used in large volumes in all electronic devices to provide energy on demand, decoupling of signals and filtering of noise and you cannot have an electronic circuit without capacitance. MLCC are the product of choice in almost 90% of slot choices requiring faradaic capacitance in the world today. This requires almost two trillion parts to satisfy real-time global printed circuit board production and more than four trillion capacitor body production starts to fulfill on an annual basis.”
In other words, MLCCs are simple and inexpensive parts that are critical and extremely prevalent in modern digital devices.
Just how prevalent, you ask?
An iPhone 6S contains some 500 MLCCs, while an iPhone X contains about 1,000. And a Tesla Model 3 vehicle contains some 9,2000 MLCCs, according to a recent Quartz article.
And then there are TVs, laptops, and all the other consumer electronics prevalent in our lives today—which together account for 70 percent of the MLCC market.
Once you consider the exponentially increasing amount of digital connections in our automobiles and the $479 billion smartphone market, you start to get an idea of how in-demand MLCCs have become today.
Just in smartphones alone, 1.68 billion devices are expected to be shipped by 2022, according to a 2018 ACerS Bulletin article detailing the extensive ways that ceramic and glass materials contribute to the smartphone industry (check out the full article here).
So, even making a conservative estimate of 300 MLCCs per smartphone, that amounts to 504 billion MLCCs required to serve the smartphone industry alone in 2022—demonstrating just how huge demand for these tiny components is becoming.
With the exponential increase in connected digital technologies in our pockets, our homes, and in our vehicles, today’s technology is requiring more and more MLCCs to keep us connected.
“We see high demand pulling more units into the marketplace; we also have a backdrop of products becoming more technical,” Andy King, president of Arrow Electronics Inc.’s global components business, says in an EPS News article. “It would be a struggle to find a vertical market that isn’t growing. There’s automotive, data, industrial, IoT, medical and anything ‘smart’.”
But although there is no problem with demand, supply hasn’t been keeping pace.
Supplying a shortage
Just like 2018’s shortage in Sony PlayStation 4 production, GoPro’s CFO recently admitted the company is currently under-producing its go-anywhere action cameras because it is limited by availability of MLCCs, according to recent Quartz article.
This MLCC shortage is not new. “The first rumblings of a components shortage were heard in late 2016,” according to an Electronic Products article. “Scarcity became a sobering reality in 2017 as rising demand spread across industry sectors. But many component manufacturers questioned whether the uptick in demand was real, leading to their reluctance to ramp up production capacity. Component manufacturers weren’t ready to invest in factories, fearing a repeat of the 2000 industry downturn marked by ballooning inventories and rock-bottom pricing. This contributed to further supply constraints.”
Part of the problem, it turns out, is just how inexpensive MLCCs are, despite their relative importance. MLCCs are and have been so low-cost (and hence low-profit) that companies have stopped investing in their production over the past few decades.
That is partially because although the components are cheap, manufacturing MLCCs requires expertise.
According to a Wall Street Journal article about capacitors, “Companies compare making an MLCC to making a piece of pottery,” explains senior correspondent Takashi Mochizuki. “Each maker has its own recipe—how much of which solvents to use, how long to mix the materials, how to set the furnace—and most of that is secret.”
These high-tech and proprietary manufacturing processes mean that getting a MLCC production operation up and running requires a relatively large investment. Couple that with slim profit margins once that factory begins to produce the actual components, and you can start to imagine the challenges that led to today’s dwindling supply predicament.
Ultimately, these conditions have led to consolidation of the MLCC market. A handful of major companies currently manufacture MLCCs—Murata Manufacturing, Samsung Electro-Mechanics, and Taiyo Yuden account for 60 percent of the market, according to a CNET article. TDK Corp. and Kyocera are also leading producers of MLCCs.
So there are few companies with the facilities and expertise to manufacture MLCCs, and even those that can produce the components often decide to go with more profitable, more high-tech, and more marketable products instead. Several companies have discontinued or limited their MLCC product offerings over the past several years, further widening the supply–demand gap.
According to the EPS News article, Arrow Electronics Inc.’s Andy King says, “I’m not sure adding capacity now will make much of a difference. [Interconnects, passives, and electromechanical suppliers] haven’t brought a new MLCC fab up in years. There is limited capital to invest, and from what I have read [MLCC manufacturers] weren’t making a lot of money anyway. We have demand acceleration; we have twice as many MLCCs in a product than in the previous version; and some suppliers have realigned what products they will be in and not be in.”
Shortages have already led to price increases, although the diminished supply problem doesn’t seem to be resolving too quickly, as we are seeing with the recently reported GoPro shortage.
As of late 2018, Murata, one of the leading MLCC manufacturers, said it expected shortages to persist into 2020. “Even though MLCC makers have been boosting capacity, it would take time to meet a level of demand that we are seeing now,” says Tsuneo Murata, Murata Manufacturing’s chief executive, in a Reuters article from October 2018.
And a TTI article from early 2018 indicates that shortage may continue for 5 years.
Why will MLCC shortage last for so long? Because although companies like Murata are extending production, getting factories up and running takes time—and money.
The Reuters article continues, “Murata Manufacturing has been adding production capacity of about 10 percent every year over the last decade, and plans for an increase of at least another 10 percent for the next year. The company has said it will be investing 220 billion yen ($1.96 billion) to boost capacity for MLCCs and batteries before the end of the current fiscal year in March 2019.”
That sort of investment seems to demonstrate that some players think this market has huge potential, even beyond the shortage.
“In addition to alleviating the current shortage, manufacturers see tremendous demand projected for MLCCs,” according to the Electronic Products article. “The number of these devices per application—ranging from smartphones to vehicles—are increasing, and there’s a rise of new applications related to 5G, the internet of things (IoT), and the electrification of vehicles.”
So even if you aren’t eyeing a GoPro camera to strap atop your helmet for your next downhill mountain biking adventure, you should take notice—MLCC availability is likely to be a topic for some time.