KEM.....
"Capacity Pressures Boost Passives Companies' Profits
FRIDAY, JUNE 30, 2000 11:45:00 PM EST
Jun. 30, 2000 (Electronic Buyers News - CMP via COMTEX) -- Interconnect, passives, and electromechanical (IP&E)
companies are usually susceptible to the summer doldrums, but this year is shaping up differently.
Component shipments are high, bookings even higher, and demand appears on track to stay robust during the second half of
this year, according to manufacturers.
Soaring demand for cell phones and other telecom and datacom gadgets initially ignited the electronics industry's latest
upturn, but passives makers are reporting strong growth across all market segments and from all regions. This scenario has
led to component shortages and higher average selling prices (ASPs) for IP&E suppliers.
Of the three product categories, passives is experiencing the strongest demand, with product shortages showing up in many
areas. Investors who think companies in this sector can't perform any better given recent record sales, orders, and profit
margins are wrong, said Jerry Labowitz, an analyst at Merrill Lynch & Co. Inc., New York.
That endorsement tallies with what executives at the leading industry players have said in recent weeks. Vishay
Intertechnology Inc., Malvern, Pa., has predicted that its second-quarter earnings will exceed analysts' estimates by at least
20%.
"We will do exceptionally well in the second quarter," said Glyndwr Smith, Vishay's senior vice president of marketing
intelligence.
Smith is basing his assumption on two key factors. Cell-phone makers are introducing new designs with more complex
applications to replace existing phones. The increased functions and capabilities require more passive components.
Additionally, the ICs that are used in new cell phones are more complex, boosting the number of passive components used
throughout.
"We haven't seen the end of this trend yet, and we expect to see demand for passive components continue to rise for the
remainder of the year, unless some unforeseen macro event takes place," Smith said.
Results to remain strong
The second half of this year will be as strong as the first six months, said Marshall Jackson, senior vice president of
marketing at AVX, Myrtle Beach, S.C.
Last month, Merrill Lynch hiked its sales and earnings projections yet again for AVX, Kemet, and Vishay after "field checks
revealed that the current cycle will provide at least another leg for these companies' stocks," Labowitz said.
Merrill Lynch expects passives maker AVX to reap earnings per share of $2.08 on sales of $2.39 billion in its current fiscal
year, up from a previous estimate of $2.33 billion in sales and an EPS of $1.93. Merrill Lynch also raised its fiscal 2001 EPS
estimate for Kemet to $2.50 on sales of $1.33 billion from an earlier net income forecast of $2.20 per share and sales of
$1.25 billion. Vishay's EPS was upped to $5 from $4.75 for the current year. The company's sales target has been moved
up to $2.3 billion from $2.33 billion.
The passive-component marketplace will remain extremely strong well into 2001, according to Dennis Zogbi, president of
the Paumanok Group, Cary, N.C. More importantly, ASPs are robust right now, especially for tantalum capacitors, industry
executives said.
ASPs for passive commodity products that are in short supply have been rising an average of 5% per quarter, which means
that pricing, in theory, has increased roughly 15% this year over last and should be up by 25% by the end of the year,
according to Vishay's Smith.
Firmer and higher ASPs for passive components are reflected in improved gross margins for both AVX and Kemet. AVX's
gross margin, for instance, climbed to 26.3% in the quarter ended March 31, up from 11.4% in the year-ago period.
Vishay's gross margin during the first quarter reached 34.8%, vs. 23.6% in the same quarter a year ago.
"Ceramic capacitors containing palladium had substantially higher price tags than those containing base metal," Zogbi noted.
Also, tantalum replacement devices such as high-capacitance ceramics and low equivalent series resistance aluminum
electrolytic capacitors are also hard to get, he said.
The price of palladium, which is used to make MLCCs, shot up briefly to $800 per troy ounce in February, then settled
down to roughly $650 an ounce in early June, said Gordon Basset, general manager of Johnson Matthey's Precious Metals
Division, Wayne, Pa. This is a significant increase from a range of $127 to $444 per troy ounce between 1996 and 1999.
Russia, the largest exporter of the precious metal, which is also used in other electronic components and in auto catalysts,
shipped 5.4 million ounces of palladium in 1999, as opposed to 5.8 million in 1998. Based on palladium shipments from
Russia so far, Bassett contends that country will export even less palladium this year.
"Last year, demand was over 9.3 million ounces worldwide, while only approximately 8 million ounces were shipped during
that time, creating a 1.3 million-ounce deficit, which obviously contributed to the price hikes," he said.
Recently, the resistor market has also begun to show signs of tightening. Despite the procurement constraints facing OEMs,
and the obvious advantages higher manufacturing capacity presents to suppliers, they have been hesitant to significantly raise
capital expenditures, Merrill Lynch's Labowitz said.
This reluctance is in response to the oversupply situation in 1997, Smith said. "It looks like it will be the end of the first or
second quarter of 2001 before supply and demand start to even out," he added. |
