Capacitors oversupply cuts AVX 3Q profit

Lower prices for tantalum and ceramic capacitors, excess inventory in the electronics supply chain and a global decline in automotive manufacture resulted in lower sales and profit for US-based capacitor manufacturer AVX in April-December.

The company's net profit in October-December, the third quarter of its fiscal year, fell by 35.5pc on the year, to $47.9m from $74.3m. For April-December, net profit fell by 32.8pc, to $136m from $202.3m.

The South Carolina-based firm blamed the declines on continued weakness in the electronic components market in the December quarter and a decline in its sales through distribution channels for commodity products. But supply chain inventories started shrinking towards the end of last year, and overall orders and book-to-build ratios in the industry increase, it said.

"The economic environment remains suppressed, and uncertainties with respect to international relations and trade regulations, particularly in China, continue to put pressure on the global economy," AVX president and CEO John Sarvis said. "However, we continue to be optimistic that the evolution of new electronic devices and content will create strong demand for our components and interconnect, sensing and control devices and provide growth opportunities in the long term."

In 2018, manufacturers of multilayer ceramic capacitors (MLCCs) had struggled to meet demand, which lead to stockpiling and prompted some demand in commodity capacitors to switch to tantalum, where the supply chain also ended up overbooked. But capacity caught up last year, including at AVX, which completed a $150mn expansion at its MLCC factory in Malaysia. This left the supply chain overstocked, with customers overcommitted, causing a drop in new sales, particularly in mainstream applications.

AVX's strongest results in 2019 were in performance-critical areas that use its high-end tantalum capacitors, such as aerospace, defence and medical applications.

But automotive — where new-generation cars with high-powered electronics are the main demand driver — suffered a slump in 2019 amid tougher macroeconomic conditions and slower-than-expected market penetration for electric vehicles and infrastructure rollout. Inventories in the automotive supply chain started to decline in late 2019, AVX said, but it still remained overstocked into the new year.

In October-December, AVX's net sales slipped to $344.4m, down by 22.2pc from $442.4m in the same quarter of 2018 and down by 8.7pc compared with the previous three months.

For the nine months to the end of December, net sales dropped by almost 17pc on the year, to $1.12bn from $1.35bn.

AVX is majority owned by Japanese electronics manufacturer Kyocera, which in November put forward a proposal to buy the remaining 28pc of the company it does not own at $19.50 per share. This deal is yet to go ahead. This merger approach came after Taiwanese electronic components manufacturer Yageo agreed to buy out AVX rival Kemet, making the enlarged company the world's largest passive components manufacturer.