It’s not front page news for the general public, but the worldwide capacitor shortage is either coming or is already upon us. Think of it this way: during World War II, Allied pilots attempted to destroy German ball bearings factories because they knew that the deadly bombs, planes, and guns our enemies needed were useless without their component parts. Similarly, components such as resistors and capacitors remain mostly unseen, but they are critical to how our modern world operates.
Increased Demand
Bearings are, of course, still critical to how our world works, but modern electronics development and usage has exploded in the last few decades. Smartphones first hit the market in the early to mid-2000s, and now well over two billion people use them every day. Electronics are also becoming increasingly capable and component-hungry. The iPhone X, for instance, contains 20 percent more capacitors than the original iPhone, a device that was released in 2000 and has now sold over a billion units.
Additionally, electric vehicles are becoming more common and require four times the number of capacitors as traditional automobiles. Interestingly, these vehicles are much less mechanically complicated than their gasoline and diesel counterparts. Perhaps this would suggest that our cars will use fewer bearings in the future and that industry’s choke point has moved on to (or added) discreet electronic devices.
Supply Chain Issues
Generally in a global market, this kind of increase would not be a problem. As demand goes up, so does price, and supply naturally compensates. Unfortunately, this kind of behavior is not at all linear, and component manufacturing is spread worldwide, encountering factors such as:
- Governmental regulations
- Currency exchange rates
- Labor costs
- Shipping time
- Pricing pressure from buyers
With these issues in mind, we can see that prices haven’t kept up with demand enough to make the manufacture of discreet components like MLCC (multi-layer ceramic capacitors) sufficiently profitable. We’ve seen a doubling in production of this type of component in recent years, while the value of the overall market has remained mostly unchanged.
This price reduction has led some manufacturers to switch over to manufacturing more profitable components, which some believe has left global capacitor inventory dwindling. Due to the nature of how manufacturers specify components and the global component market, it’s difficult to accurately estimate of how many parts are on the shelf.
Electronic Device Manufacturers and the Residual Effects
If you’re a manufacturer of electronic devices, 2019 may be a challenging year. We can imagine a scenario such as this:
1. Purchasing managers exhaust all their resources to get the proper parts in on time (or at all),
2. Engineers will need to spec appropriate substitutes, which may be more expensive in the short term.
3. Someone will have to “eat” that cost. That may be the manufacturer or the distributors and ultimately, the consumers.
Of course, in the longer-term, the market will react to this demand, even if it takes a couple of years, as some have predicted it will. Some manufacturers are already increasing prices in reaction to this decreased supply, which should begin to pull supply, demand, and actual component pricing into balance. As production ramps up to meet demand, we could even have a glut of components in the more distant future, followed by price negotiations, loss of profitability, and a cycle that starts over again.
Our global economy is an amazing system for goods distribution, though no one has figured out how to tame global business cycles properly. This type of prediction would be difficult enough if things stayed the same, but who can predict how many capacitors we’ll need to supply the next decade of innovation?
So if you think you’ll need a new phone or device in the next two years, late 2018 would be a good time to buy it. On the other hand, humans often buy and hoard as much as we can during lean times, instead of leaving resources for those who need them most. Businesses are no different in many aspects, and during shortages, some companies will stock their racks with components that could go unused and unknown to the broader market.
Capacitor and Component Prices to Come
Capacitor and component prices will likely rise in the coming months and years, though so will the cost of housing, gasoline, food, and nearly everything else that you need. Will it be harder for manufacturers to obtain the components we take for granted today? It’s certainly possible, though it’s unlikely our modern world will grind to a halt because of it. Perhaps your next computing device — which will contain computing power orders of magnitude higher than what put humankind on the moon — will cost a few more dollars soon. Then again, there’s always a possibility that innovations will take things in a different direction altogether.