Issue link: https://iconnect007.uberflip.com/i/1181966
NOVEMBER 2019 I SMT007 MAGAZINE 13 will ultimately take care of themselves. Where the problem will be with industrial, medical, and defense customers with the longer design cycles that use larger parts. There's no addi- tional capacity coming on. Any type of device that comes in and uses more of those will put a strain on the market. Johnson: That certainly is a change in the land- scape and sends a cautionary message to those who are designing or maintaining designs for production to continue to pay attention to the parts they're using and potentially redesign to use parts earlier along in the bell curve. Martin: Yes. That's what I tell our custom- ers when we meet with them. You only have until the automotive industry backs out of the larger parts. In their design cycle, we're prob- ably down to two to three years, and then the whole market will shift over. If they have not designed down to a smaller part size, they're going to have a problem; it's going to be con- strained sourcing, limited or no availability, and higher prices. There's nothing on the hori- zon that says that these larger parts will ever come back, and it's mainly because they are the kind of parts that we would call "commod- ity" or "popcorn" parts. Over the years, they have become cheaper and cheaper, so the aver- age selling price is extremely low, and manu- facturers have low margins in these types of parts, so they are dropping the lines in favor of higher margin production. In the case of an MLCC, case size 1206, they can build as many as 300 0201-size parts at a higher average sling price per part than the cost of one 1206. The customers have squeezed the margins over time to the point that the manufacturers are not investing in the larger-size part capacity any longer; thus, from their perspective, they can get 300+ return in the same space of parts. Johnson: That is not going to come back, is it? Martin: No. The only ones that will stay are those that are high voltage because they can't get the capacitance yet; "yet" is the keyword. They can't get the capacitance yet in the high voltage part. Over-100-volt parts still have to be the larger sizes, but the smaller sizes—any- thing that's 50 volts or less—can get a higher capacitance in a smaller part, so they're going to shift and move the volume production there. There will always be some suppliers that pro- duce a larger part, but there will be fewer sup- pliers, the lead times will go out, and the prices will go up because they become more of a spe- cialty item then. Johnson: How are things for Vexos? What's your perspective on the market from Vexos' business? Martin: We're doing very well and growing the business. We've added a number of new cus- tomers on a regular basis, and our key focus is design services and information like I'm giving you. As a standard practice for our customers, we analyze the health of their BOMs. We tell them the life cycle of their parts. We tell them which MLCCs are going to be sourcing prob- lems for them, both short-term and long-term, and those become differentiators for us. Our business is very strong. Most of the stress is off of the buyers, so they're in a planning mode. I wouldn't say it's a buyer's market yet, but it's very close to being one again. We believe the market is in more of a lull than a major shift. We're watching 5G technol- ogy because once that kicks in—which it will start in China first, and then Europe and the U.S.—you'll have telecom companies replac- ing infrastructure worldwide. Then, every- body, including me, will want new cellphones Most of the stress is off of the buyers, so they're in a planning mode. I wouldn't say it's a buyer's market yet, but it's very close to being one again.