Electronic Component Lead-Times Continue to Rise: What’s Causing These Shortages?
Experts predict shortages to last well into the future, but what’s causing the issue?
Passive components like resistors, capacitors, and antennas are the essential ingredients required for products in the electronics industry, and, for the past several years, a shortage has been causing massive spikes in lead-times. The problem is a result of many factors, but a significant influence is the lack of specific raw materials.
A better understanding of the issues behind the component shortages can offer valuable insight into the solutions hiding beneath the surface. Components like capacitors and resistors may be small, but their influence on manufacturing as a whole is much more substantial than many of us realize.
Identifying the Underlying Issues
The growth of technology directly fuels the demand for electronic components to match the progression of electronic products. While this type of growth would typically be an exciting prospect for OEMs, it has instead resulted in shortages that could last years into the future. Currently, lead-times for resistors and capacitors are pushing 18–50 weeks, respectively. These kinds of delays cause problems down a product’s entire supply chain and ultimately result in delayed product deliveries.
What’s causing these massive shortages? While changes in raw material availability are certainly part of the problem, these factors are continuing to fuel the shortages:
New and Expanding Markets
Demand has already outpaced supply. Because electronics manufacturers use capacitors in a wide range of products, they are in high demand by many high-tech industries, including new markets that have begun to develop as the result of emerging technologies.
The automotive industry, for example, is one of the main culprits. Cars from manufacturers like Tesla rely on the management of electrical current to function, so they require more capacitors than a standard gasoline-powered vehicle. As cars become safer, more comfortable, and increasing friendly to the environment, each vehicle requires thousands of ceramic capacitors for advanced electronic features. Combine this with the rising number of electronic products and the growing Internet of Things (IoT) industry, and it’s easy to see how demand is outpacing supply.
Any supply chain professional knows the importance of planning, but sometimes you can’t plan for decisions that lawmakers will enact. Things like sanctions, tariffs, and trade agreement changes can cause extensive disruptions in manufacturing.
When President Trump announced a 25% tariff on imported steel and a 10% tariff on aluminum and steel imports from Mexico, Canada, and the EU, it sent shock-waves through the global economy and stocks dropped due to anticipation of a trade war.
United States Commerce Secretary Wilbur Ross described the motivation behind this decision by offering this statement to reporters:
“We take the view that without a strong economy, you cannot have strong national security.”
By raising prices on imported goods, American stocks go up as well because these companies will benefit from additional tariffs on their foreign competitors. While it does help these companies, the decision also sends world trade into chaos. All three of the affected countries have announced retaliatory tariffs on goods like motorcycles, denim, cigarettes, and, of course, materials used in the automotive and manufacturing industries.
In addition to the tariffs placed on North American allies, the United States is poised to impose tariffs on $50 billion of Chinese goods as punishment for intellectual property theft. This has also caused tension between the two nations as both had previously agreed to put tariffs on hold as negotiations continued.
In the interest of empowering domestic organizations, these decisions could make things more difficult for those who rely on components and materials from global supply chains.
The rising costs of components as a result of raw materials, tariffs, and overall demand are already causing astronomical changes concerning costs. Gartner, for example, predicts a 7.5 percent increase in worldwide semiconductor revenue, totaling $451 billion in 2018. The report went on to predict a volatile market through 2018 as a result of component shortages, rising bill of materials (BOM), and a rise in average selling prices.
Limitations in Component Manufacturing
The limits of current manufacturing technology also play a factor in these component shortages. The MLCC industry, for example, has reached a plateau in its ability to stack ceramic layers, which could extend shortages to 2020 and perhaps even beyond that. Modern technology requires thousands of layers to be stacked onto each chip, and, to maintain profits, manufacturers have been extending lead times to maintain high-quality output.
Since MLCCs constitute a significant component in the electronics component industry, manufacturers need to look for other dielectrics besides barium titanate-based ceramic dielectric, despite this being the most cost-effective solution. A positive effect of this search for other dielectrics could instigate the accelerated development of next-generation small component technologies that leverage current materials to manufacture components more effectively.
The Major Types of Capacitors, and the Raw Materials They Require
While much of the spotlight is on MLCCs, they are not the only types of components suffering from shortages due to factors like raw materials and the ones listed above. The materials used in manufacturing include things like palladium, silver, nickel, copper, and platinum. Here’s a look at the major types of capacitors and resistors, and where they stand:
PGM ceramic capacitors contain electrodes made from some combination of palladium, silver, and solid-state ceramic materials. The extremely high price of the raw material palladium at $860 per troy ounce in 2017 represents half of the total cost to manufacture PGM ceramic capacitors in high fire systems. If we compare this to base metal electrodes (BME) capacitors that use materials like nickel, the cost isn’t nearly as high, which is part of the reason why these cheaper types of capacitors are in such short supply. Without competitive pricing on palladium, this will continue to be an issue.
Interestingly enough, the cost of equipment for entering into BME production is significantly higher than PGM manufacturing, so the upfront costs are prohibitive. Even so, palladium feedstock is 56 times more expensive than nickel feedstock, which is why many companies are transitioning to nickel-based production.
Tantalum capacitors require tantalum metal powder and wire. Historically, tantalum was sourced from Australia and Brazil, but now it mainly comes from the Democratic Republic of the Congo (DRC), Rwanda, and other nearby African countries.
This raw material has been a focus in news cycles as a result of the Dodd-Frank Act, which was put into place after the Great Recession in 2008. The Act contains a section on conflict minerals produced in or near the DRC, and its legislation has long been the source of costly endeavors to ensure that tantalum is being sourced responsibly.
Since the Trump Administration has seen fit to repeal some aspects of this bill, the result could remove some of the added costs associated with tantalum-based capacitors. This breakdown of the Act and its ramifications outlines the scenarios that could occur as a result of repealing the Act or leaving it in place.
The latest change to the Act targets numerous banks and freed them from Federal Reserve oversight, but the President has vowed to repeal and replace Dodd-Frank entirely. If this happens, we would see major changes to the way tantalum is sourced and sold. Of course, there is still plenty of debate on sourcing this kind of mineral from conflict countries.
The tantalum itself is mined as ore and then processed into metal powder or wire. The powder production is complicated because it requires as little contamination as possible. That means that other elements like oxygen, nitrogen, and potassium must be removed to ensure a high level of purity.
The future is looking good for tantalum, despite the changes in its geographic mining locations. There’s an overlap with high cap BME MLCCs, which ensures continued growth. The performance of tantalum-pentoxide as a dielectric layer is also very high, with a forty year performance in critical electronics. The ability to mine it from multiple locations also bodes well for the future of this raw material.
DC film capacitors rely on metalized polyethylene terephthalate (PET) plastic film, which increases in price by a large margin as the material decreases in thickness. Luckily, the availability of PET is very high, thanks to its use in bottling and plastic packaging.
AC film capacitors use polypropylene in their dielectric construction, and while the amount used per capacitor is high, this raw material is used in plastic packaging for food and represents one of the main capacitor dielectrics for the last 50 years, thanks to its high performance at increased voltages.
The feedstock material for this raw material is propylene, and this has been in short supply throughout 2017, resulting in some volatility in pricing over the last several years.
Activated carbon materials are used in the production of “supercapacitors,” which include microbeads and activated carbon cloth. These have very high surface areas, but also very different pricing. Microbeads represent the vast majority of carbon used in supercapacitors, but carbon cloth is used in high capacitance supercapacitors greater than one farad and up to 3,000 farads.
The dielectric in these supercapacitors is not the conventional solid choice that we typically see in other types of capacitors. Instead, these capacitors use electrostatic double-layer capacitance and electrochemical pseudocapacitance. Both of these contribute to higher levels of capacitance overall.
While these can be created from organic source materials like nuts or seeds, most are made using synthetic processes. Compared to other dielectrics, it’s not utilized as much, but as a power augmentation device for load leveling, it has great potential in the future.
While aluminum capacitors utilize a wide range of materials like etched anode and cathode foil, separator paper, and electrolytes, these materials are often less expensive than alternative dielectric options. The etched anode foil is the most expensive aspect of production, which has led many manufacturers to create in-house methods of creating it. Both aluminum and its feedstock, Bauxite, are expected to experience growth and stability over the next several years.
What’s The Solution?
A combination of strategic sourcing and smart management of raw materials through the use of recycling and reusing base material will go a long way towards fixing these shortages. While there’s no quick solution, the good news is that most raw materials are holding stable.
The raw materials that are rising in cost or conflict like palladium and tantalum will be ones to watch carefully. The development of more efficient manufacturing solutions can alleviate some of the strain on raw materials, but a long-term solution must be found to create renewable solutions for these resources.
They won’t run out any time soon, but one day they will, and it’s in our best interest to find a way to recycle and reuse them more efficiently and effectively before that happens.