Buyers can expect relatively stable pricing for passive components, including capacitors, resistors, and inductors, during the remainder of the year. Price erosion is expected in the three to five percent range in 2015. Lead times also remain steady in the six to eight week range with the exception of a few product areas such as power inductors, where lead times could stretch to ten to 12 weeks.
Passive component manufacturers generally face price erosion annually, typically less than five percent when demand is stable. “We always plan for a few percentage reduction in pricing every year but because we play in higher end segments, we don’t see the dramatic degradation seen in more commodity segments,” said David Valletta, executive vice president of worldwide sales, Vishay Intertechnology.
There hasn’t been anything dramatic happening in pricing over the past couple of years, said Valletta. “The general sense is that the wild swings are starting to become a thing of the past. There is not a lot of leverage at customers to force you to reduce prices and there isn’t enough shortage on product supply to get big price increases. It has stabilized a little bit.”
However, the currency situation in Europe is having an effect on revenues in the passives industry. Earlier this year, market research firm Paumanok Publications reported that currency valuations, particularly the yen, won and NT$ to the U.S. dollar, are resulting in price erosion and lower revenue growth in the passive electronic components industry.
Valletta agreed: “Vishay’s dollar-based divisions that sell in Europe are under pressure. It effects everybody’s revenue. But for profitability, it’s less critical for Vishay. A lot of our components divisions are based in Europe and we price in Euro and our cost is in Euro so it doesn’t impact our profits in our European divisions. It keeps us stable. For U.S. divisions it has presented some challenges.”
In addition to stable pricing, buyers can expect plenty of passives inventory particularly in the distribution channel. Distributors are still investing and inventory levels are good, said Valletta.
But inventory levels depend on regional strategies. For example, Valletta said distributors in North America and Europe tend to stock more inventory than distributors in Asia, at least, for passive components.
But in a very stable market like North America, it does pose some challenges for distributors. “It puts a lot of pressure on distributor margins, said Valletta. “For us it’s not quite so bad but it does have an effect on how much they can keep on the shelf.”
In general, the passive components market is expected to be flat this year, according to component manufacturers. “The year started out strong and we were expecting another good year, but we didn’t see it. We’re expecting a second half that is relatively flat compared to the first half,” said Valletta.
The ECIA recently reported that component sales through the distribution channel were “basically flat” in the Americas in the second quarter of 2015, compared to the first quarter of 2015. Passive sales were down 3.6 percent.
“Market sector sales remain choppy with inconsistent growth from one quarter to the next,” said ECIA. “Looking to the second half of 2015 in the Americas, distributors are projecting sales to look similar to the first half with modest growth compared to the second half of 2014.”
But Valletta said “it’s not a disaster. Passives growth will be in the low single digits.”
However, if all goes well with Vishay’s push to grow in Asia, the passives giant could see five percent growth. “We’ve been pushing to grow more in Asia so even with a flat market we’ve been picking up a little bit of share, but not enough to offset a major flattening of the market. Five percent is what happens if we continue to get growth from Asia.”
Vishay has intentionally stayed away from Asia because the markets were too consumer oriented, said Valletta. Vishay’s big play is in the higher end product areas.
“But we started looking at industrial especially with China opening up a little bit more,” said Valletta. “We have so many specialty passives that we decided to try to penetrate industrial markets in Asia, primarily China, but not limited to China.”
Vishay has had a lot of success with its strategy but they are “small opportunities,” said Valletta. “It doesn’t have the same kind of volume as chips used in computers. It’s not billions of parts.”
Some of the market sectors that Vishay is enjoying some growth from this year include automotive and power management measurement such as smart grid, smart meters, and automated home controls. The two weakest markets are oil & gas and computing.
Growth for Vishay is also coming from additional investments in product line expansions as well as acquisitions to add new technologies to its product portfolio. A few key passives acquisitions over the past year include the purchase of Holy Stone and its polymer tantalum capacitor technology; MCB Industrie S.A., a manufacturer of high-end resistors, and HiRel Systems, a manufacturer of high-end custom magnetics.