Arris, which bought the cable set top box businesses of Motorola and Pace and makes a range of broadband and enterprise equipment, is pointing to significant supply problems with MLCCs.
“We reported solid results for the second quarter with revenue up 10% quarter-over-quarter to $1.73 billion,” said said Bruce McClelland, CEO of Arris at the comapny’s half year results last week. “Sales were up across all segments and CPE [set top boxes] returned to over $1 billion in sales as we projected but were slightly lower than our expectation as we managed the timing of supply and component availability,”
The company is having to increase prices for boxes and is not renewing less profitable deals as a result. “We’ve had extensive interactions with our customers to adjust prices in the second half of the year and 2019 to reflect the increased component cost, primarily memory and MLCC capacitor components, and plan to further rationalize lower contribution customer engagements,” he said.
Some of the problems with MLCCs come as more devices are shipped through distribution. Back in April, TTI warned in a letter to customers of a worldwide shortage of commonly used multi-layer ceramic chip capacitors (MLCC).
“The conditions of this market are different than historical shortages and allocations of components – the most critical difference being that this time of constraint will last longer. The underlying cause is economic and largely pertains to case size 0402 and up, both low and high CVs, though case size 0201 in some values are included,” said the letter.
“We have reached a point that some manufacturers are concentrating their future activity on smaller case sizes and less commoditized technologies of the market like high voltage and flexible termination, with a particular focus on high-reliability end-markets such as automotive and medical. So while manufacturers are adding capacity, it’s generally not for commercial commodity parts – making this market condition even more difficult to navigate.”
TTI responded to this by aggressively expanding inventory of MLCCs to shield customers from expanding lead times and price increases, and decided to decline orders from new customers for constrained and allocated parts. Market conditions have turned out to be worse than expected it said in June.
“Even with our decision to reserve our inventory for existing customers, we will not have enough to cover the increases. It is not unusual right now to see true demand increases from customers of 30% or more year on year. The supply chain is further complicated by the fact that there are a number of buy-resell agreements among MLCC manufacturers and we are already seeing unexpected shortages as a result.”
McClelland saw this on a recent trip to Asia.
“I spent a week in Asia just a week or two ago and met with all of our key suppliers as well as all of their key suppliers, including MLCC manufacturers,” he said. “It’s an interesting environment. It’s the typical kind of supply-demand equation but there’s a couple of nuances with the approach to business and pushing more component supply through distribution, which has kind of created an odd environment around MLCCs. So, it’s not just kind of the normal supply-demand price has gone up a bit; it’s really the business distribution model that changed.”
“And so, most companies like us are in an environment where trying to secure supply is on a week-to-week basis and prices fluctuate pretty significantly. So what we’ve done is worked pretty closely with customers around their supply needs, try and minimize the amount of premiums you’re paying as much as possible, and ultimately on top of what we’ve gone through with memory, we’re not in a position we can absorb those costs,” he said.
This has led to higher box prices this year. “We’ve been pretty upfront and open with customers on what the price increases are, and obviously, seeing a lot of that implemented here in the third quarter and kind of fully implemented by the fourth quarter at this point,” he added.