Introduction to Aluminum Electrolytic Capacitors
Aluminum electrolytic capacitors are consumed in many of the key end products that drive the global high-technology economy and are used for bypass, decoupling, filtering and burst power on consumer, professional and mission critical circuits. Major end product markets include TV sets and home theatre equipment; desktop and notebook computers, automobiles, telecommunications infrastructure equipment, defense electronics, medical devices and power transmission and industrial device end-markets. Aluminum electrolytic capacitors represent a multi-billion sub-segment of the global capacitor industry with tens of billions of pieces sold throughout China, SE Asia, Europe and the Americas. In fact, according to Paumanok Publications Industrial Market Research, aluminum electrolytic capacitor shipments can be traced to almost every country in the world where they are used as primary components in new constructions or as replacement parts for legacy electronic systems.
The Aluminum Electrolytic Capacitor and its Place in the Global Market
Aluminum electrolytic capacitors account for 6.5% of all capacitor shipments in terms of volume; but a full 22% of the global capacitor market in terms of U.S. dollar value. Aluminum electrolytic capacitors are considered a niche component compared to the hundreds of billions of ceramic capacitors (Multilayered ceramic chip capacitors, or MLCC) produced each year, but provide an important solution for all design engineers faced with the requirement of achieving high capacitance and high voltage beyond the capabilities of ceramic capacitors.
Challenging Market Environment in 2015
The market for aluminum electrolytic capacitors has been challenging during the past year, with declining sales to the computer and consumer AV markets, offset by increased demand from the automotive, wireless base station, robotic, machine tool and renewable energy segments. This disparity in demand is causing a shift in global consumption of aluminum electrolytic capacitors based on configuration, with increases in demand for axial leaded designs for automotive and snap-mount and screw terminal designs for industrial and renewable energy end-use markets. However we note stagnation or weakness in the larger markets for radial leaded and vertical chip capacitors consumed in consumer audio and video imaging equipment and computer and computer peripherals.
Also, a large impact on the market over the past year has been the currency exchange rates which favor Japanese manufactured aluminum electrolytic capacitors because of the weakened yen. Japanese manufactured aluminum electrolytic capacitors were extremely cost effective in overseas sales where the weakened yen made them extremely competitive against locally manufactured products. Therefore we saw sharp increases in revenues at such companies as Nippon Chemi-Con and Nichicon in yen, but this was at the expense of the rest of the world. Also, regardless of the weakened yen, the Japanese consumption tax caused a decline in the home market of Japan. So globally, and when measured in U.S. dollars, the global market for aluminum capacitors actually has declined slightly, with the overall trend and outlook remaining muted due to the uncertainty of the yen valuation going forward (however it should be noted that in October of 2015 that the yen has exhibited early signs of strengthening against the US dollar).
Aluminum Electrolytic Capacitor markets are at a low point because the end-use markets into which the products are being sold are undergoing significant change and the weak yen is diminishing the global market of value.
End Market Analysis and Outlook
The following segment of this MarketEYE article looks more closely at the status of aluminum electrolytic capacitor consumption by end-use market segment, including applications in consumer audio and video imaging, computers and peripherals, industrial printed circuit boards, automotive, communications infrastructure and specialty end use markets.
Consumer Audio and Video Imaging and Home Theatre Electronics
Consumer electronics is a broad category and many of the top Japanese vendors of aluminum electrolytic capacitors to the segment further dichotomize the market into consumer audio and video imaging equipment and home theatre electronics. It is still a valuable segment and the large volume demand is from the television set, game console, digital video camera, digital still camera and stereo market segments. The traditional TV set market is being negatively impacted due to the success of the Smartphone, on which younger consumers prefer to watch television. This segment of the market has been eroding for the past five years. The global TV set market has experienced excess channel inventories as a result of the lack of anticipated consumer demand for advanced products.
Television sets are a key end use market for radial leaded and vertical chip aluminum electrolytic capacitors, have been struggling for the past two years and having an adverse negative effect on the aluminum capacitor supply chain. These markets struggle because the consumer preference has shifted. Most customers, especially young and new high tech customers, are opting to watch TV on their Smartphone, which eliminates so many layers of component redundancy that entire sub-sets of the consumer audio and video imaging segment are collapsing. Either they adapt or become dinosaurs and go extinct.
Many consumer electronics products that consume aluminum electrolytic capacitors are losing demand at the customer level because they are redundant with Smartphone applications and increased hardware functionality. Unfortunately, wireless handsets use no aluminum capacitors because the physical size requirements of the phone exclude the use comparably large case size aluminum capacitors. This is why MLCC remain the popular choice for cell phones. End markets that have been displaced by the Smartphone include point and shoot cameras, traditional stereo equipment, some smaller television sets, GPS equipment, cordless telephones and telephone answering machines. We also perceive the cable set top box market under threat because of its symbiotic relationship with the embattled television set market.
Computer and Peripheral Markets
The computer and business machine segment, which includes motherboards, power supplies, monitors, hard disc drives, video graphics cards, modem cards and semiconductor chipset boards; as well as scanners, printers, fax machines, point of sale machines and photocopiers, account for a significant amount of aluminum electrolytic capacitor sales in 2015. However, the global notebook and desktop computer segment will decline by an estimated 10% in unit sales as tablets continued to be the computer of choice for Internet access. Desktop and notebook computers are aluminum electrolytic capacitor intensive and the success or failure of the computer market can have a significant impact on the supply chain for aluminum capacitors, “What’s good for computers is good for aluminum capacitors.”
Industrial, Power T&D and Lighting
The industrial, power transmission and distribution and lighting segment also consumed a significant amount of the dollar value associated with aluminum electrolytic capacitors in 2015. This segment, which has seen two years of sluggish demand (there has always been a direct correlation between fuel prices and the demand for renewable energy systems), saw a minor turn around especially in Europe (Germany and the UK) during the year. Eventually the pendulum will swing back to favor solar, wind, geothermal and ocean wave generation technologies and this will in turn boost demand for large can electrolytic capacitor designs. This basket category of products, includes (primarily) industrial grade capacitors in screw terminal and snap mount configurations used in heavy power electronics (inverters) motor starts, lighting ballasts and switchgear and switchboard apparatus and motor controllers.
Automotive and Transportation
Automotive electronics include engine control units, ABS cards, SRS electronics, car stereos, HVAC systems, driver information and diagnostic systems, power train electronics, HEV integration, door locks, seat motors, interior and exterior lighting, instrument clusters and related electronics. Aluminum electrolytic capacitor consumption in automotive electronic subassemblies totaled approximately 10% of all aluminum electrolytic capacitors for FY 2015. Demand for aluminum capacitors consumed in automobiles and other forms of transportation are increasing in accordance with the general trend to increase the electronic content per automobile as well as because of global growth in automobile sales, especially in emerging economies. Automotive grade aluminum capacitors are in great demand for the air bag igniters; instrument clusters and all the infotainment products beyond the firewall. Also, there are emerging opportunities for aluminum electrolytic capacitors in the intelligent vehicle highway system and for charging stations for electric vehicles.
Telecommunications infrastructure equipment such as switches, routers and repeaters; PBX equipment, wireless base stations, cable modems and various forms of commercial satellites and related communication equipment continue to outperform other industries to support the continued growth in wireless communications and internet bandwidth. Aluminum electrolytic capacitor consumption in the telecom equipment sector are a small, but profitable segment, where the aluminum capacitors are largely consumed for the input and output filtering of power supplies. This market is also experiencing change, whereby growth is manifesting itself in the wireless base station and access equipment market, but declining in landline support for traditional wire line switches.
The specialty electronics market segment includes five discernible sub-segments- medical electronics, oil well electronics, mining electronics and defense electronics (we include a fifth category to include all other unique segments that require unusual voltages or operate at unusual frequencies or at different levels of chemical, gas or radiation exposure, or at elevated temperatures to 300 degrees C). Defense is by far the largest segment, accounting for 65% of the specialty electronics markets worldwide. The medical segment is the most demanding, but also the most profitable segment. Oil well electronics are also quite demanding and very profitable components markets. The specialty market for specialty aluminum capacitors is one of the more profitable and best-hidden segments of the global marketplace. Recently the defense segment of the market stagnated due to the sequester in the U.S., and oil and gas electronics markets declined by 50% in two years, as the number of active oil wells was drastically reduced in response to lower fuel prices. Still however, medical and commercial aerospace markets have proven quite robust for aluminum capacitors in recent years and these markets are expanding as we head into 2016.
Regional Analysis for Aluminum Capacitors
China accounted for the majority of global aluminum electrolytic capacitor consumption in FY 2015. Imports from Japan and domestic factories satisfied Chinese demand.
Mainland China rapidly has become a large production base for Asian consumer electronics. Consumption of aluminum electrolytic capacitors in the country, however, has always been in large volumes, since Japanese production of television sets and hi-fi stereo systems was pushed into the region in the late 1960s and early 1970s. Thus many consumer electronics houses in Mainland China also produce aluminum, DC film and single-layered ceramic capacitors. Primary aluminum capacitor consumption is in the hi-fi stereo, television and car stereo markets, although telephone handset production also consumes large quantities of aluminum capacitors.
Indeed, aluminum electrolytic capacitor consumption in Taiwan is largely centered in Hsinchu Science Park, which accounts for a significant amount of the world’s computer and computer peripheral market. Moreover, the nation is a center for contract electronic manufacturing for motherboards and LAN cards, although aluminum electrolytic capacitor consumption will largely be in the CRT monitors produced in Taiwan. Other large consumption takes place in desktop scanners, modems and notebook PCs.
The other major consumers of aluminum electrolytic capacitors in the region, include Korea, Singapore, and Thailand. Demand for aluminum capacitors in these countries is largely satisfied by imports from Japan and China, or by domestic producers such as Sam Young in Korea.
The market in Europe is dictated largely by sales of large can aluminum capacitors for consumption in power electronics, especially for renewable energy system inverter packages, and for filtering DC link circuits in wind, solar and geothermal systems. We have seen growth in sales of large can aluminum capacitors in Europe in accordance with their global dominance of specific sub-systems utilized in renewable systems- especially inverter technology in Germany. There also is a significant amount of European consumption of aluminum capacitors at major European brands in consumer AV equipment such as Philips in Holland and Robert Bosch GmbH in Germany.
The United States and Mexico remain significant consumers of aluminum electrolytic capacitors, primarily for industrial and power and lighting applications the United States and Mexico. Aluminum capacitor demand in the Americas also involves supplying legacy products such as CRT monitors, and magnetic ballasts, as well as the automotive markets and the communications infrastructure markets. We also see a considerable amount of motor start capacitor activity in Brazil and other parts of South America for aftermarket air conditioner repair.
Conclusions and Market Outlook
Aluminum electrolytic capacitors will remain the second largest capacitor market by dielectric over the next five years. We see nothing on the horizon that would be disruptive to aluminum capacitors. The business model for growth, which is shared by the major Japanese vendors of these dielectrics and who account for 68% of global aluminum capacitor revenues, is largely focused on large can electrolytic capacitors for renewable energy applications (i.e. smoothing for inverters in wind and solar energy projects) and conductive polymer aluminum electrolytic capacitors for applications in advanced computing and automotive electronics, and to a minor extent, V-chip and radial leaded capacitors for communications infrastructure equipment. Other markets where aluminum electrolytic capacitors are consumed do not appear as robust and are expected to continue to demonstrate poor and even negative returns and includes the consumer audio and video imaging segment and the global notebook computer markets. Therefore, we anticipate a stagnant market environment for aluminum capacitors for at least the next five years. We also expect during this time period for the yen to strengthen against the U.S. dollar, which will put an added strain on the supply chain. As a result of this conclusion we urge manufacturers of aluminum capacitors to look to their channels of distribution as true assets and begin to sell additional components through them that have affinities with aluminum capacitors, such as power film capacitors and single layered high voltage ceramic capacitors. Otherwise we fear that aluminum electrolytic capacitors alone will not be enough to support growth for the future.