MLCC is a well-known passive electronic component and one of the world’s most widely used. Almost all consumer electronics require MLCC components, which are commonly referred to as the “rice of the electronics industry.”
The full name of MLCC is Multilayer Ceramic Capacitor, which has the advantages of a wide range of capacitance values, small size, and high voltage and frequency resistance. It is mainly used in various electronic devices for oscillation, coupling, filtering, and bypass circuits. With the continuous improvement of MLCC technology, reliability, and integration, the market size has continued to grow.
According to data from the China Electronic Component Industry Association, the global MLCC market will reach 114.8 billion yuan in 2021, a year-on-year increase of 12.9%, and is expected to reach 149 billion yuan in 2025, with a compound annual growth rate of 7.9% over the five-year period.
01. Has the MLCC cycle bottomed out, and is the turning point here?
From a market perspective, MLCC has obvious cyclical properties, and the industry’s prosperity shows periodic cycles, with product prices, demand, and production capacity fluctuating accordingly.
In 2021, benefiting from the surge in demand in various application markets and the supply shrinkage caused by the COVID-19 pandemic in Malaysia, a major producer of MLCCs, the industry chain entered a state of supply competition, with manufacturers raising prices and expanding production. However, in the market where there was a general price hike for passive components, with the expansion of production capacity of several MLCC manufacturers and weak demand for mobile phones, the MLCC market has cooled down sharply since the second half of last year, resulting in a serious inventory backlog.
According to a domestic MLCC manufacturer, “Due to the decline in demand from the consumer electronics market, we have seen a significant decrease in orders from downstream mobile phone manufacturers.” Against this backdrop, leading global MLCC manufacturers began to cut production of standard products in the fourth quarter of last year, or attempted to revive their performance through price cuts.
From an application perspective, about 70% of the demand for MLCCs comes from the consumer electronics field, with audio and video equipment accounting for 28% of the demand, the mobile phone market accounting for approximately 24%, and the PC market accounting for 18%. Automotive MLCCs are gradually becoming an important source of demand, especially in the current situation of sustained weak demand in the consumer electronics market, where the demand for MLCCs in the automotive market remains strong, driving rapid growth in demand.
According to TrendForce, the order volume for automotive MLCCs is expected to remain relatively stable in the first quarter of 2023, and MLCC suppliers are expected to actively invest in research and development and expand their capacity for automotive products throughout the year.
Overall, after experiencing a new round of cyclical fluctuations, the MLCC industry is approaching the bottom of the cycle, with the turning point gradually established. Domestic MLCC manufacturers such as Fenghua Advanced Technology and Sanhuan Group have also recovered in terms of capacity utilization and overall inventory.
TrendForce data also indicates that the BB Ratio (order-to-shipment ratio) for MLCC suppliers increased slightly to 0.79 in February 2023, indicating marginal improvement in demand. As downstream demand continues to recover, the industry’s business climate is expected to bottom out and improve.
02. The demand for consumer-grade MLCC is currently weak, while the demand for automotive-grade MLCC is on the rise.
In recent years, with the development of the automotive industry towards intelligence and electrification, the growth of automotive MLCCs has been greatly promoted, including the development and evolution of the powertrain system, audio-visual entertainment system, ADAS, and autonomous driving system.
According to Li Wenjun, the sales director of Sanhuan Group, the market for automotive electronic components continues to rise, and the number of MLCCs used in a single vehicle’s powertrain system ranges from 450 to 2500, which is positively correlated with the degree of automotive electrification. The number of MLCCs used in a single vehicle’s ADAS, safety, comfort, entertainment, and other systems can reach 4300-18000.
According to industry research, Tesla’s ADAS system uses 3600 MLCCs per vehicle. In the future, as higher-level L3-L5 autonomous driving technologies advance, the usage of MLCCs will increase further.
The rise of the automotive industry has brought new opportunities to the passive component market, including MLCCs. It is not difficult to understand why the automotive industry is referred to as an “MLCC collective.” As noted by Chen Tai-ming, the chairman of Yageo, companies with a focus on standard products will face significant challenges in the next two years. The failure of the standard MLCC product market is driving major MLCC manufacturers to gradually shift towards high-capacity, high-frequency, and high-reliability products, while also increasing the proportion of industrial and automotive-grade products.
Based on this, top manufacturers such as Murata, Samsung Electro-Mechanics, Sunlord Electronics, and TDK have started adjusting their production capacity, gradually withdrawing from the production of general-purpose products and focusing on small-size, high-capacity, and automotive-grade MLCC products.
- In May 2022, TDK announced plans to expand its automotive MLCC production capacity at its Kitami plant in Japan. The construction is set to begin in March 2023, and the mass production is expected to start in September 2024, with a monthly production capacity increase of 5 to 8 billion pieces.
- Kyocera plans to build new production facilities at its Kokubu factory in Kagoshima, Japan, with construction set to begin in February 2023 and completion expected in May 2024. The goal is to increase its MLCC production capacity by 20%, with an estimated annual production value of 20 billion yen at full capacity.
- Samsung SEMCO will expand its global automotive business in accordance with its 2023 strategic plan, with a total increase of 2 billion pieces of automotive MLCC production capacity in Busan and Tianjin.
- Murata’s automotive production capacity will continue to grow by 10% annually, with an additional 3 billion pieces of monthly production capacity added after the second quarter of 2023 at its factories in Fukui, Izumo, and the Philippines. Its total monthly production capacity will reach 25 billion pieces, maintaining its leading position in the industry.
- Under the introduction of Kemet’s automotive MLCC technology, Yageo Corporation is expected to increase its monthly production capacity by 1.5 billion pieces at its Dafa factory in Kaohsiung after the second quarter of 2023. It aims to increase the revenue share of its automotive electronics from the current 18-20% to 22% by the end of 2023.
- As demand for standard MLCC products remains sluggish, Walsin Technology has also shifted its main resources and capacity to high-end products such as automotive capacitors and resistors. Its Luzhu factory in Kaohsiung is expected to be fully devoted to the automotive field, with automotive products accounting for just over 10% of Walsin Technology’s overall performance at present. It is expected to increase to 20% within two years.
Compared to the global market, the growth of MLCC in the Chinese automotive market is more significant. It is estimated that the usage of MLCC in Chinese automotive will increase from nearly 150 billion pieces in 2021 to over 280 billion pieces in 2025. Notably, the usage of MLCC in Chinese new energy vehicles is expected to reach about 90 billion pieces in 2022, surpassing that of fuel vehicles for the first time. The annual compound growth rate of MLCC for pure electric vehicle models is 34.74%, much higher than the industry average of 17.3% per year. Clearly, the market for automotive MLCC will be the next battlefield.
However, compared to consumer electronics, automotive MLCC requires higher specifications and must possess the following characteristics:
- High-temperature resistance, humidity resistance, shock resistance, and the ability to adapt to extreme environments.
- Meet higher product life requirements (15-20 years).
- Production must pass the IATF 16949 automotive quality system certification and AEC-Q certification for automotive products.
These requirements set a high entry barrier for manufacturers of automotive-grade MLCCs, as participants need to have a deep technical background in the MLCC field. Japanese and Korean passive component giants maintain an advantage in this area, but in recent years, domestic companies have also started to develop in the high-end field of automotive-grade MLCCs.
With the breakthrough of automotive-grade technology and the release of production capacity, Fenghua Hi-Tech has become one of the first domestic manufacturers to achieve mass production of MLCCs, with a 28.52% year-on-year growth in sales in the first half of last year in its automotive electronics business. Current and some of the company’s collaborations with automakers are in progress, but product certification takes time, and downstream orders will only increase once the verification process is complete. It is reported that Fenghua Hi-Tech’s production proportion of automotive-grade products is expected to exceed 10% in 2023, and the proportion of automotive-grade businesses will continue to increase in the future.
In the context of the downturn in the electronics industry last year, Walsin Technology rose against the tide, completing nearly 2 billion yuan in financing last year to significantly increase production capacity and improve its sustained research and development capabilities for high-capacity, automotive-grade, and other high-end MLCCs. In the first quarter of this year, the first phase of Walsin Technology’s B building expansion project was successfully put into operation, with an annual production capacity of 600 billion MLCCs, and the company plans to continue to add investment to reach a scale of 1.5 trillion pieces per year by 2028.
Yageo Technology is expanding its MLCC project in Dongguan, with all five of its imported advanced manufacturing lines aimed at automotive-grade MLCCs. In addition, Yageo plans to build a full-size and full-series MLCC production line at its new Hua Dong base with an annual production capacity of 500 billion pieces, which will be applied to consumer electronics, automotive-grade, and other areas. The new Hua Nan base plans to have an annual production capacity of 220 billion pieces, producing high-end MLCC products for 5G, medical, and automotive applications.
It can be foreseen that the demand for MLCCs in automotive electronics will significantly increase in the future, and the enthusiasm of major manufacturers to expand production will continue. Domestic manufacturers are also committed to solving the problem of the lack of choice for domestic high-end MLCC suppliers.
03. The dilemma and way out for domestic MLCC manufacturers
For a long time, the global MLCC market has been dominated by a few major players, with Japanese and Korean manufacturers holding an absolute advantage in the high-end MLCC market. According to the latest announcement from Yageo Corporation in 2022, Murata occupies 31% of the global MLCC market share, maintaining its absolute leading position; Samsung Electric follows closely behind with a market share of 19%; Yageo ranks third with a share of 15%; Sunlord Electronics, TDK, and AVX respectively hold 13%, 3%, and 3% of the market.
Although Yageo has risen to third place in the world with its production capacity advantage, it is still mainly focused on the mid-to-low-end MLCC market, and its competitiveness in the automotive and high-end industrial control markets is still not as good as that of Japanese and Korean manufacturers. Taiwanese and domestic companies still have a large gap to bridge in comparison to their Japanese and Korean counterparts.
The market share of domestic MLCCs is very low, and the country still relies heavily on imported products, especially for high-end MLCCs. According to data from the General Administration of Customs of China, in 2021, China imported 3.45 trillion MLCCs and exported 2.02 trillion MLCCs. The import unit price of MLCCs is significantly higher than the export unit price, reflecting the relatively low-end nature of domestically exported products.
Faced with the current situation in the industry, domestic manufacturers are accelerating their production expansion, and the demand for domestication is strong.
On one hand, as downstream markets and contract manufacturing gradually shift to China, and with the wave of domestic substitution, there is a pressing need for local supporting demand in the MLCC industry chain. On the other hand, overseas MLCC companies are gradually exiting the low- and mid-end markets and turning to high-end markets such as automotive regulations and industrial control with strong demand. More and more domestic MLCC players are beginning to take on this business, with domestic manufacturers expected to seize market share with their advantages in product price-performance ratio and quick response capabilities. Domestic companies such as Sanan Group and Fenghua Advanced Technology are increasing investment in production capacity, optimizing product structure to capture market share abandoned by Japanese and Korean companies. For example, Sanan Group’s monthly MLCC production capacity increased from 1.7 billion in 2017 to 10 billion in 2020 and is expected to add a total of 540 billion units in annual production capacity after all fundraising projects reach full capacity in 2020 and 2021.
On this basis, domestic manufacturers need to further penetrate the mid-to-high-end MLCC market and compete with international giants.
In the automotive market, domestic MLCC manufacturers started late and the threshold for automotive electronics is high. Moreover, customers for car regulation-level MLCCs are relatively stable, so the depth of cooperation between local MLCC manufacturers and downstream major customers is not enough. Therefore, there will be significant pressure on the scale and price strategy of high-end products in the market competition process.
However, due to the super-expectation of the new energy vehicle industry, coupled with the impact of geopolitical factors, some demand is flowing toward Chinese mainland brands. For example, Fenghua Advanced Technology has entered the supply chain system of BYD and other major automakers. Weirong Micro Tech has quickly launched a series of standardized AEC-Q200 automotive regulation-level products and has entered into cooperation with multiple traditional major automakers and new car manufacturers in China. Its annual production capacity for automotive regulation-level MLCCs was approximately 500 million units in 2021, with the potential to increase to 300 billion units by 2028. Sanan Group will invest CNY 6.385 billion to focus on making MLCC component products bigger and stronger and strive for breakthroughs in high-capacity MLCCs.
Overall, domestic manufacturers have made great breakthroughs in low- and mid-end MLCC products, and are rapidly substituting for high-end MLCC products, some of which have already been replaced. Driven by strong demand in markets such as automotive and industrial control, domestic substitution is a long-term theme for passive components.
05. Lacking core technology, it still takes time to catch up
In addition to the aforementioned challenges, Li Wenjun, Sales Director of Sanhuan Group, stated that there are barriers to powder particle size reduction, thinning of dielectric layers, multilayering technology, and high-precision equipment technology for MLCC products in China. Lack of core technology in processes such as compounding, layering, and sintering results in domestic MLCC manufacturers falling behind other international competitors in market competition.
In terms of compounding, MLCC powder is the main cost, accounting for 35%-45% of high-capacity MLCC and 20%-25% of low-capacity MLCC. In the upstream ceramic powder industry, there are technical and process barriers to the production of ceramic powder, and production and sales are mostly monopolized by foreign manufacturers.
According to a report by Hongta Securities, in terms of the global MLCC ceramic powder market, Japanese and American companies occupy the leading positions. Sakai Chemical and Nihon Chemical collectively hold a 42% market share, while Ferr0 from the United States holds a 20% market share. Fuji Titanium, Toho Titanium, and other Japanese manufacturers also occupy major market positions.
In terms of the domestic powder market, Sanhuan Group currently has the production method for ceramic powder of mid-to-low-end MLCC products, using anti-reduction ceramic materials and electronic slurry formula and preparation technology. Sanhuan Group has gradually started mass production of mid-to-low-end MLCC products, but due to technological barriers, it still faces difficulties in entering the high-end MLCC market in the short term.
In addition, MLCC products have high requirements for the number of stackable layers and stacking accuracy of the stacking process, and there is still a gap in the number of layers of domestic enterprises compared with Japan and South Korea. Currently, high-end stacking machines are still mainly imported.
06. Local manufacturers ushered in development opportunities
China is the world’s largest consumer electronics demand market, with the 2021 Chinese MLCC market size reaching 48.4 billion yuan, accounting for over 40% of the global total. The strong demand for domestic alternatives will become a strong driving force for the future development of domestic companies. In addition, China is also the world’s largest new energy vehicle market, and under the promotion of the “new four modernizations” of new energy vehicles, the future automotive MLCC market will usher in explosive growth.
Regarding the substitution of high-end MLCC products, some industry insiders believe that efforts can be made in three aspects to further seize the market: first, actively learn from the experience of advanced peers, strengthen product quality management, and bring already scaled-up and mass-produced products to international advanced levels in terms of performance and quality. Second, increase R&D investment, collaborate with domestic high-quality material and equipment manufacturers, and enhance basic scientific research capabilities. Third, strengthen upstream and downstream industry cooperation to overall enhance the MLCC industry chain level.
In fact, in recent years, the acceptance of domestic brands in the MLCC market has been increasing. Especially in the current international situation, manufacturers have begun to realize the importance of promoting supply chain autonomy and control. For multiple considerations such as product supply sustainability, production and operation safety, and stable procurement prices, end manufacturers are beginning to shift their supporting supply chains to domestic enterprises and actively promote the process of key component autonomy and control. As the passive component with the highest market share, the space for domestic MLCC substitution is vast, and domestic manufacturers will fully benefit from the trend of domestic substitution, continuously seizing market share from international competitors.
In recent years, the proportion of domestic brands has risen rapidly, and the changes in the proportion of product shipments from some powerful distributors also reveal the trend. A certain distributor revealed that in 2018, the proportion of domestic MLCC brand product lines in the company was only 32.65%, but it surged to 93.7% in 2019.
07. Words in the end
Although recent market turbulence has affected the production plans and pace of MLCC manufacturers, the short-term “fire and ice” situation of MLCC has a limited impact on the overall industry, and the expansion plans of various companies indirectly confirm the medium-to-long-term prospects of the MLCC market. Industrial and automotive MLCCs have become new growth points, and the overall demand for MLCCs will continue to increase.
The growing domestic power is becoming stronger, which is crucial for stabilizing the global supply chain and solving the long-standing fluctuation problem in the MLCC market. After all, the MLCC market was once monopolized by international big brands, and the limited production capacity and difficult management led to shortages and price increases, which made many truly demanding end-integrators suffer. Moreover, under the current international situation, the supply chain may occasionally report unstable news. While the localization of manufacturers cannot completely solve the above problems, it is indispensable in easing the industry atmosphere and improving the stability of the supply chain, especially the stability of the Chinese market.
Therefore, for local manufacturers, how to take advantage of this special period to strengthen their own technology and increase market share may be the most important focus to consider.
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