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COVID-19 Delays Some 5G Network Installs and MLCC Capacity Growth
May 10, 2020
Mobile carriers, network suppliers, and analysts are warning that the rollout of 5G networks could be delayed as a result of the COVID-19 pandemic. The full impact of the pandemic won’t be known until the June numbers are in, but right now, the US 5G rollout appears to be in better shape than Europe, with China’s deployment seemingly right on track. Huawei warned that 5G’s European rollout would “certainly be delayed” back in March, although it said the effect wouldn’t be as significant in the UK. We’ve also already seen 5G spectrum auctions delayed in a number of European countries including Portugal, Austria, Spain, France, and the Czech Republic. But as more businesses comment on the pandemic, its overall impact is starting to become clearer. Businesses across the 5G spectrum are now warning of potential delays. Samsung, for example, said that “investments in 5G networks will be reduced or delayed domestically and internationally as more effects of COVID-19 unfold.” Meanwhile, Ericsson and Nokia, two of the three major network providers alongside Huawei, also warned of delays. “COVID-19 and actions taken by governments to slow down the spread are making our service delivery and supply harder due to lockdowns and travel restrictions in many countries,” Ericsson’s CEO Börje Ekholm said, while Nokia’s CEO Rajeev Suri told CNBC that there “could be some delays” in Europe. “Investments in 5g networks will be reduced or delayed domestically and internationally as more effects of covid-19 unfold” While most companies agree that Europe’s 5G rollout is likely to face delays, other regions are being more aggressive. “We see a number of countries actually accelerating investment in 5G and 4G capacity in response to the pandemic,” said Ericsson’s Ekholm, before citing China as an example. Counterpoint Research has also reported that China’s 5G growth “remains as expected.” The US 5G rollout schedule also seems more or less on track, for now. Qualcomm’s president Christiano Amon admitted that there had been “minor delays” in 5G deployments in some regions, but “in the United States, some carriers are actually ahead of scheduling the build-out, taking advantage of probably less traffic.” This optimism was echoed by Verizon, which said that it is still on track with its 5G rollout despite the challenges caused by the pandemic. AT&T warned that “logistical issues” outside of its control may reduce the company’s spending on 5G, but was unclear on the specific impact this may have on its rollout. T-Mobile is yet to report its quarterly earnings, but it recently announced that it’s taking the first steps to combine its 5G network with Sprint’s after officially completing the merger last month.
Ultimately, however, the full impact of the pandemic is still unknown. It’s unclear when European spectrum auctions may finally go ahead, or when governments may lift the restrictions that are making work to deploy physical infrastructure challenging. And amidst the economic uncertainty caused by the crisis and people sequestered at home, it’s no wonder nobody can fully commit to rollout schedules made before the crisis hit.
5G has increased demand for MLCC (Multi-layer Ceramic Capacitors) as the need for such devices is higher in 5G devices than in 4G, with smartphones generally accounting for ~40% of MLCC demand. While more oriented toward control functions in the automotive space, they are used in a variety of applications relating to power management and charging converters in those vehicles with hybrid or full electric power systems, with the number of MLCCs in such vehicles increasing in such vehicles by between 3x and 5x over internal combustion oriented vehicles. Process technology for MLCCs is specialized and capital costs for new production capacity is also high, so MLCC supply has been tight, leading to recent shortages. Samsung Electro-Mechanics is building a new MLCC production facility, primarily for automotive application in Tianjin, China.
The company has mentioned that a result of the COVID-19 outbreak, the Chinese government has restricted the final construction and outfitting of the plant and the company does not expect to be able to supply product this year as expected. The company also indicated that a returning workforce of less than 50% at its MLCC plant in the Philippines, a result of governmental restrictions, is also causing issues for the company’s MLCC production, while demand is increasing, and will keep operating rates for MLCC production below 80% in 2Q. The company is hoping to increase its MLCC production in Busan (Korea) and will sell out of inventory, but it is questionable whether this will be enough to cover the shortfall.
MLCC production capacity in China and other regions has been disrupted due to the COVID-19 virus, although a number of production sites have been reopened in March and April, albeit with some running limited production as noted above. That said, March also saw a 19% price drop for materials used to produce passive components (resistors, capacitors, inductors), indicating that industry capacity was rebounding slowly. The question remains as to whether demand will return quickly and from what application, and based on our look into Chinese 5G smartphone and base station production, we expect demand has returned and is likely to begin to stretch MLCC lead times relatively soon with 5G smartphone share increasing.
Caution dictates the outlook:
While 2Q MLCC results will be affected by limited capacity and limited demand, 3Q is still a wild card, although we expect that each successive quarter will be better, with full demand back by September, with MLCC lead times increasing at that point.
COVID-19 Delays Some 5G Network Installs and MLCC Capacity Growth
May 10, 2020
Mobile carriers, network suppliers, and analysts are warning that the rollout of 5G networks could be delayed as a result of the COVID-19 pandemic. The full impact of the pandemic won’t be known until the June numbers are in, but right now, the US 5G rollout appears to be in better shape than Europe, with China’s deployment seemingly right on track. Huawei warned that 5G’s European rollout would “certainly be delayed” back in March, although it said the effect wouldn’t be as significant in the UK. We’ve also already seen 5G spectrum auctions delayed in a number of European countries including Portugal, Austria, Spain, France, and the Czech Republic. But as more businesses comment on the pandemic, its overall impact is starting to become clearer. Businesses across the 5G spectrum are now warning of potential delays. Samsung, for example, said that “investments in 5G networks will be reduced or delayed domestically and internationally as more effects of COVID-19 unfold.” Meanwhile, Ericsson and Nokia, two of the three major network providers alongside Huawei, also warned of delays. “COVID-19 and actions taken by governments to slow down the spread are making our service delivery and supply harder due to lockdowns and travel restrictions in many countries,” Ericsson’s CEO Börje Ekholm said, while Nokia’s CEO Rajeev Suri told CNBC that there “could be some delays” in Europe. “Investments in 5g networks will be reduced or delayed domestically and internationally as more effects of covid-19 unfold” While most companies agree that Europe’s 5G rollout is likely to face delays, other regions are being more aggressive. “We see a number of countries actually accelerating investment in 5G and 4G capacity in response to the pandemic,” said Ericsson’s Ekholm, before citing China as an example. Counterpoint Research has also reported that China’s 5G growth “remains as expected.” The US 5G rollout schedule also seems more or less on track, for now. Qualcomm’s president Christiano Amon admitted that there had been “minor delays” in 5G deployments in some regions, but “in the United States, some carriers are actually ahead of scheduling the build-out, taking advantage of probably less traffic.” This optimism was echoed by Verizon, which said that it is still on track with its 5G rollout despite the challenges caused by the pandemic. AT&T warned that “logistical issues” outside of its control may reduce the company’s spending on 5G, but was unclear on the specific impact this may have on its rollout. T-Mobile is yet to report its quarterly earnings, but it recently announced that it’s taking the first steps to combine its 5G network with Sprint’s after officially completing the merger last month.
Ultimately, however, the full impact of the pandemic is still unknown. It’s unclear when European spectrum auctions may finally go ahead, or when governments may lift the restrictions that are making work to deploy physical infrastructure challenging. And amidst the economic uncertainty caused by the crisis and people sequestered at home, it’s no wonder nobody can fully commit to rollout schedules made before the crisis hit.
5G has increased demand for MLCC (Multi-layer Ceramic Capacitors) as the need for such devices is higher in 5G devices than in 4G, with smartphones generally accounting for ~40% of MLCC demand. While more oriented toward control functions in the automotive space, they are used in a variety of applications relating to power management and charging converters in those vehicles with hybrid or full electric power systems, with the number of MLCCs in such vehicles increasing in such vehicles by between 3x and 5x over internal combustion oriented vehicles. Process technology for MLCCs is specialized and capital costs for new production capacity is also high, so MLCC supply has been tight, leading to recent shortages. Samsung Electro-Mechanics is building a new MLCC production facility, primarily for automotive application in Tianjin, China.
The company has mentioned that a result of the COVID-19 outbreak, the Chinese government has restricted the final construction and outfitting of the plant and the company does not expect to be able to supply product this year as expected. The company also indicated that a returning workforce of less than 50% at its MLCC plant in the Philippines, a result of governmental restrictions, is also causing issues for the company’s MLCC production, while demand is increasing, and will keep operating rates for MLCC production below 80% in 2Q. The company is hoping to increase its MLCC production in Busan (Korea) and will sell out of inventory, but it is questionable whether this will be enough to cover the shortfall.
MLCC production capacity in China and other regions has been disrupted due to the COVID-19 virus, although a number of production sites have been reopened in March and April, albeit with some running limited production as noted above. That said, March also saw a 19% price drop for materials used to produce passive components (resistors, capacitors, inductors), indicating that industry capacity was rebounding slowly. The question remains as to whether demand will return quickly and from what application, and based on our look into Chinese 5G smartphone and base station production, we expect demand has returned and is likely to begin to stretch MLCC lead times relatively soon with 5G smartphone share increasing.
Caution dictates the outlook:
- First, most of the demand for 5G currently is coming from China, while demand in Europe has been weak and will likely continue thru May, at least,
- Second, even at the lower production levels in March/April, the industry should meet demand, keeping MLCC pricing stable at current levels.
- Third, changes are expected as the world begins to recover and demand increases, but it could take another quarter before full scale demand returns.
While 2Q MLCC results will be affected by limited capacity and limited demand, 3Q is still a wild card, although we expect that each successive quarter will be better, with full demand back by September, with MLCC lead times increasing at that point.
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Barry Young
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