Firms Get Aggressive on Passive Pricing
Shortages boost active prices too
By Bernard Levine
Passive and active component makers are unleashing more price hikes, emboldened by an uncharacteristically torrid, shortage-laden summer.
With the traditional summer slowdown nowhere in sight, shortages of ceramic and tantalum capacitors, memories and other parts are expected to persist into the fall and beyond, driving prices even higher. Many OEMs and contract manufacturers are anxious to get enough parts to meet soaring demand for cell phones, handheld computers and other products, and are not about to quibble over a few extra pennies for capacitors, some industry observers said.
"Component demand has been outstripping supply for a while, especially in the passives areas. With shortages, prices go up. It is a terrific opportunity for passives guys to put in price increases," said George Perris, president of Sierra Marketing Group, Rocklin, Calif. Shortages and upward price pressure also are affecting SRAMs and other semiconductor areas, he added.
The component crunch is expected to intensify as the fall and Christmas seasons near.
"I think prices will continue to rise through the October timeframe. This will be a good back-to-school and Christmas period," said Ben Schwartz, vice president of strategic marketing at distributor Jaco Electronics Inc., Hauppauge, N.Y.
"(In ceramic and tantalum caps), every couple of weeks to a month, you see some upward price changes. Since the tightening of supply and shortages came about, there has been a dramatic increase in prices of passives, and it is more dramatic there because passive component prices had been flat to down for so long," Schwartz said. "It is a shock to everyone, but users are just glad to get parts. Today people are thankful to get product to meet their production cycles."
Upward price pressure in passives is stunning after so many years of price erosion, agreed Perris, yet prices are actually going up because demand is so strong, he added. The same phenomenon is taking place in semiconductors, Jaco's Schwartz said.
"DRAM prices are stable and slightly up. SRAM is still going up. A lot of discrete power and discrete small signals are still hard to get and there may be some price increases."
Perris warned about possible semiconductor double ordering.
"This is one time I wish there were still a semiconductor book-to-bill ratio being put out by the SIA (Semiconductor Industry Association). I would suspect, my gut feel, is that the semi book-to-bill must be 1.3 to 1.4. If that's the case, we are reaching the point where double ordering will take place."
That may be cause for future concern, but right now surging order rates and higher prices are making things joyous for many component makers and distributors. Price increases often go straight to the bottom line: several firms last week cited higher tags among key factors producing sizzling quarterly results.
"We are extremely pleased with the results for this quarter," said Felix Zandman, chairman and chief executive officer of Vishay Intertechnology Inc., Malvern, Pa., whose product roster includes passive and active parts. "We achieved, yet again, all-time records in sales and net earnings. Bookings in the second quarter were $858 million, the highest quarter of bookings in the history of the company, resulting in a book-to-bill ratio of 1.4 to 1 for the second quarter.
"The backlog at the end of the quarter was $943 million, again the highest in the history of the company. Our gross margin for the current quarter was 41.5 percent of sales and increased 133 percent over the same period of last year and 35 percent over the first quarter of 2000. This was the result of increased volume, a very favorable product mix, price increases, continuing cost reductions, and productivity improvements. We continue to see strong business conditions in all of our product lines fueled especially by continuing demand for telecom and other wireless communication devices."
There is no letup in sight. Vishay anticipates production of more than 500 million cell phones in 2000 and more than 800 million in 2001, compared with sales of 284 million in 1999. The company also is seeing strong performance in other end-markets such as automotive, computers, semiconductor and industrial equipment, medical devices, instrumentation and even military.
"Our resistor and diode product lines have recently seen the beginning of a cycle of extreme consumption with customers on allocation, resulting in price increases," Zandman said.
Some passives makers have been working out long-term supply deals with key customers.
"Demand for tantalum and ceramic capacitors continues to exceed industry capacity, leading to ongoing customer concerns about future capacitor shortages. These concerns are being partially met as we continue to execute and initiate long-term supply agreements that effectively commit our future capacity expansions," said David Maguire, chairman and CEO of Kemet Corp.
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