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Lead Times Stretch, Prices Rise for Passives, Discretes, and Memory ICs

Independent distributors report strong sales because of shortages of a range of components

Strong demand from the automotive, cell phone, consumer electronics, and industrial equipment manufacturers has resulted in long lead times and higher prices for a variety of components, including multilayer ceramic capacitors, resistors, discrete semiconductors, and memory ICs.

Component lead times that were in the 12-to-15-week range a year ago are now 30 or more weeks with some manufacturers reporting 52-week lead times for some passives. In some cases, memory IC manufacturers are refusing to take orders because of backlog.

Strong demand and limited supply means prices are rising. Prices for some components on the open market have double or tripled. In some cases, component tags have increased 800%, according to one independent distributor.

Strong demand, shortages, and higher prices are good news for independent distributors. Electronics buyers typically look to independent distributors when parts are in short supply. As a result, this year many independent distributors are expecting to see a double-digit increase in revenue for the year, and some are forecasting 20-30% sales growth.

The bad news for buyers is shortages are expected to continue for the first quarter of next year and some independent distributors say supply could be tight through the first half of 2018.

“There are two big issues: multilayer ceramic capacitors (MLCCs) and resistors,” says Paul Romano, chief operating officer for independent distributor Fusion Worldwide, based in Boston. “There is significant usage of these devices in a number of different areas that are driving the shortages.” The components are used in many high-volume products, including computers, cell-phone handsets, automotive systems, consumer electronics, and industrial equipment among other systems.

Supply Under Pressure

Demand for components has grown significantly in 2017 and “is creating significant pressure on supply of these devices,” says Romano. “We have seen lead times go from 10-14 weeks to 25, 30, 35, and even 40 weeks on some devices.”

Romano: Price increases are “a function of supply and demand. When demand outstrips supply, prices are going to rise and that’s what’s happening now,” said Paul Romano, chief operating officer for Fusion Worldwide. In some cases, large companies are willing to pay higher prices for shortage parts to guarantee that they have continuity of supply, said Carlton Dufoe, CEO and founder of NewPower Worldwide.

Flash memory and DRAM are also in short supply. Intense demand for flash has driven some shortages in DRAM because some memory IC manufacturers have shifted some DRAM capacity to flash.

Romano said there are also shortages of “some really basic transistors and diode products” because of a substantial increase in demand.

Layla Wright, vice president of global purchasing for independent distributor Smith and Associates, based in Houston, said there are shortages for components from many component manufacturers, including Texas Instruments, STMicroelectronics, Vishay, and others.

Layla: “I don’t know if there is type of any electronic part or finished product that has not seen significant market consolidation over the last five years,” says Layla Wright, vice president of global purchasing for Smith & Associates.

She said lead times now range 24 to 52 weeks, while normal lead times would be 12 to 15 weeks. Wright said there are “hardly ever shortages” of passive components, but this year many are in short supply.  She noted that some customers are looking for large volumes of parts totaling 5 million or more.

Long lead times and shortages are due to a combination of increased demand and consolidation of the supply base, according to Wright.

 “I don’t know if there is any type of electronic part or finished product that has not seen significant market consolidation over the last five years,” she says. Suppliers are buying other suppliers and “you are left with fewer and fewer sources whether it is on the component level or finished product level,” says Wright.

The building out of network infrastructure for telecommunications, Internet of Things, artificial intelligence, and industrial automation is also driving component demand, she said.

Buyers Are Double Ordering

With strong demand, a “bunker mentality” is emerging with buyers because they are concerned they may not able to get enough parts for production lines, said Romano. As a result, some buyers are “double and triple ordering parts and that puts additional pressure on the supply chain,” he says. It also makes it harder for component manufacturers and distributors to gauge actual component demand.

Because of strong demand, component manufacturers are increasing prices, said Romano. Prices are also increasing on the open market. Depending on the component, prices have increased 100% to as high as 800%, said Romano.

“It’s a function of supply and demand. When demand outstrips supply, prices are going to rise and that’s what’s happening now,” he says.

Carlton Dufoe, CEO and founder of NewPower Worldwide, an independent distributor based in Nashua, N.H., said some brokers are trying to sell components that usually cost a couple cents for 25 or 40 cents apiece. “There’s a level price gouging going on,” he says.

In some cases, large companies are willing to pay higher prices for shortage parts to guarantee that they have continuity of supply. Dufoe said one customer bought two years’ worth of supply for every MLCC used in equipment the company manufactured.

“They spent a good amount of money and paid more than what they were used to in order to have surety of supply,” he said.  After all, the last thing a global OEM or EMS provider wants to have a production chip because it did not have enough ceramic capacitors or other components that costs a half cent.

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