AI is propelling industries into a new era, with even passive component supply chains reaping the benefits.
Industry insiders stress that passive components are critical to all electronic devices, and the rise of AI is boosting both the quality and quantity of these parts. Whether in AI-powered vehicles or computers, demand for passive components is set to surge. In addition, high-end servers, cloud computing, and data centers are driving up the use of inductors, with prices for advanced models potentially jumping 5 to 8 times.
Yageo, a major player in the passive component sector, sees strong growth prospects for AI applications and remains optimistic about future demand. The company is also bullish on the second half of the year for consumer electronics and servers, noting that automotive demand remains robust. Overall, AI and automotive markets are key growth drivers for passive component makers.
Two significant trends are emerging. First, Yageo and Walsin Technology, two of the largest players in the space, have been aggressively acquiring domestic and international firms. Yageo, known for its formidable M&A capabilities, continues to expand its footprint.
Walsin has focused on acquiring or investing in Japanese firms to grow its market share in Japan and strengthen its product portfolio, particularly in automotive applications. While the two companies pursue different expansion strategies, both steadily grow their business empires.
Walsin's subsidiary, Kayama Electric, operates a chip resistor factory in Malaysia, specializing in automotive-grade thick film resistors.
Walsin noted that Kayama established a production line for automotive components in 2018, supplying Tier 1 automakers such as Bosch and Continental. The company is capable of mass-producing automotive-grade chip resistors and multilayer ceramic capacitors (MLCCs).
Kayama currently produces between 6 billion and 7 billion automotive thick film resistors per month. The company expects the automotive market in 2024 to remain on par with 2022 and currently operates at 80% capacity. It plans to boost production by 20% in the second half and continue expanding in the coming years, though it acknowledged that growth in the automotive supply chain is slower due to its closed nature.
Kayama is focusing on developing smaller, more reliable resistors with ultra-low current detection. Recently, the company has launched high-power, surge-resistant, and lead-free sulfur-resistant resistors tailored to automotive needs.
The second major trend is the growing concentration of passive component production in Malaysia, driven by geopolitical shifts.
Many global suppliers have chosen Malaysia as their overseas expansion base. Companies such as Kyocera's AVX, Murata, Taiyo Yuden, NCC, and Panasonic have all set up factories in the country. Taiwanese firms, including Walsin Technology, Yageo's Kaimei Resistor, and Chilisin, have also established operations there, producing resistors, MLCCs, aluminum capacitors, and inductors.
Tai-Tech Advanced Electronics and Apaq Technology are also expanding their presence in Malaysia, with new facilities expected to be completed in the fourth quarter. These companies are relocating equipment from China and Taiwan to Malaysia, with mass production slated to begin by the end of 2024, focusing on automotive and AI server products.
Walsin, which has a strong presence in Malaysia, said the US-China trade war has driven companies to expand production outside of China, with the "China+1" strategy showing no signs of abating.
The trend toward Malaysia is also influenced by Japanese suppliers, who originally chose the country for expansion. As Japan remains a major global supplier of passive components, other companies have followed suit, creating a clustering effect.
Yageo, a leader in the sector, noted during its earnings call that rising AI server demand is boosting capacity utilization. The company reported NT$10.318 billion ($322 million) in revenue for August, a 6.2% month-on-month decline but a 14.5% increase year-on-year.
Yageo attributed the August drop to early shipments in July and the European summer holiday season. However, demand for AI-related applications remains strong, and other regions are seeing steady growth. The company expects September revenue to surpass August levels slightly.
Looking ahead, Yageo anticipates that customers will stock up ahead of China's National Day holiday in October, driving revenue growth in September. The company expects third-quarter revenue to increase 1-3% as previously forecast. Walsin reported NT$3.076 billion (US$96 million) in revenue for August, up 7.31% year-on-year, with cumulative revenue for the first eight months reaching NT$23.223 billion, a 6.59% increase.
