Important Market Trends Impacting Metal Oxide Varistors: 2012-2016

This story addresses important market trends impacting the global demand for metal oxide varistors, which are key components used to protect sensitive electronic products from the impacts of electrical transients…

Introduction To Varistors:A varistor is an electronic component with a significant non-ohmic current-voltage characteristic. A varistor is also known as Voltage Dependent Resistor or VDR and therefore varistors are considered a sub-set of the variable resistor component segment, and are also likewise considered to be part of the overvoltage protection component market segment as well.

Application of Varistors:Varistors are often used to protect circuits against excessive transient voltages by incorporating them into the circuit in such a way that, when triggered, they will shunt the current created by the excessive voltage away from the sensitive components. Multilayered chip type varistors are physically small, and mirror the EIA (US) and EIAJ (Japan) accepted ultra-small case sizes consumed in digital electronic circuits for ESD (Electrostatic Discharge) protection. Larger configuration disc type varistors (pressed pill technology) are older, legacy type components that are used to protect sensitive line voltage equipment connected to AC power lines.

Construction of Varistors:Varistors are ceramic in nature, and are created from ceramic slurry composed of zinc oxide and specific additives (such as Bismuth).  Multilayered chip varistors are produced in the same manner as multilayered ceramic chip capacitors, whereby ceramic slurry is screened through a Doctor Blade, and then electrode materials composed of precious metals (palladium + silver or in some instances- platinum) are applied to each consecutive layer of ceramic “green tape.”  The finished, stacked construction is then fired in either a batch or tunnel kiln, dried and then separated into the desired case size.  The finished chips are then “terminated” with siver paste materials.  Disc varistors are typically radial leaded in nature, whereby the ceramic powder mixture is compressed into a pill or “disc shape, sprayed with silver conductive materials, and then encapsulated in polymer materials.

Chip and Disc Varistor Configurations and Variations: As noted, Metal Oxide Varistors are produced in two primary configurations- chip and disc.  Disc varistors have been around for 45 years (legacy components), while chip varistors are newer, and have been available for about 20 years.  Varistor construction methods are similar to ceramic capacitor production methods for both disc and chip versions. Chip varistors have also evolved into array designed (primarily quad packs- four varistors in an 0603 or 0805 package), while disc varistors have evolved into large industrial block designs.  Since varistors are in fact non-linear resistors, their physical size determines how much energy they can absorb, thus raw material consumption becomes an important part of the cost of goods sold.  Also, redundant solutions are employed to gradually dissipate excessive voltage.

Relationship Between Varistor Configuration and End-Use Market Segment: Varistors are segmented into digital electronic markets and industrial or line voltage markets. Chip varistors, especially multilayered designs, employ precious metal electrodes, with emphasis upon palladium-silver (Pd + Ag) electrodes, although Paumanok has noted the use of platinum (pt) electrodes in the past in this market, the top competitors now employ a palladium+silver electrode system. The market for varistors has grown substantially because of their use in wireless handsets for IEC 61000-4-2 compliance, which is a European standard for protection against electro-static discharge (ESD).  Chip varistors are also used in automotive electronic subassemblies to protect engine control units and other sensitive subassemblies against the affects of transients.

Competition With Other Overvoltage Protection Components:Varistors compete against TVS (transient voltage surge) diodes directly, but have made inroads in wireless communications devices and automotive electronic subassemblies because of their volumetric efficiency (small case size parts, which are important for handset use), and because of their robust nature in harsh automotive environments.  Although some varistors are used in the personal computer markets in Taiwan and China, we note that semiconductor devices such as zener diodes and avalanche TVS diodes are used in larger volumes for IEC-61000 4-2 compliance.  Additional competition comes from the relatively new surge polymer materials, which are cost competitive against varistors, and have better performance with respect to lower equivalent series inductance.  Polymer surge protection materials are an offshoot of polymer PTC technology which is used for overcurrent protection.

Important Market Trends Impacting Varistors: 2012-2016

Pricing Trends And Future Price Stability: According to the recently released market study from Paumanok Publications, Inc. entitled ” Metal Oxide Varistors: World Markets, Technologies & Opportunities: 2012-2016″ price erosion is a key threat to the global circuit protection markets.  The constant downward pressure on price for all components is a major issue; and impedes profit margins, which in turn impedes growth capacity additions and expansions.  This is most true in the mass produced products for ESD protection- including both chip varistors and TVS diodes.  Price erosion is also a function of increasing competition, especially in high unit growth segments such as varistors and other ESD protection components; as well as more vendors entering the markets, especially in the Chinese region.  The problem with continued price erosion in the markets is the ever-looming prospect of higher raw material costs for precious metals, base metals and rare earth additives (includng zinc oxide, silver and palladium) which are consumed in the construction of varistors.

Varistor Co-firing with Ceramic Capacitors: Metal Oxide Varistors manufactured from zinc oxide ceramic materials have been demonstrated by such companies as EPCOS (now DBA TDK-EPC) to be co-fireable with MLCC materials made from barium titante materials (bariun carbonate combined with titanium oxide).  The target market for this capacitor, ESD protection component was the input lines for engine controllers used under-the-hood in advanced automobile applications.

Electronic Circuit Protection Component Future Integration In LTCC & FR4 Modules- It is important to note the trend in modularization for applications in wireless communications devices and automotive electronic control units that should impact circuit protection components.  This trend is already a $1 billion industry for LTCC (low-temperature co-fired ceramics) and FR4 modules, which are used as power amplifiers, front-end transmitters, and Bluetooth Antenna modules in cell phones, and as engine control units in automobiles. Major producers of LTCC components and modules include Murata, TDK, Kyocera, EPCOS, Taiyo Yuden, C-Mac Scrantom, National Semiconductor LTCC Operations, CTSWireless, and Robert Bosch (captive) in automotive.  In FR4 modules the major suppliers to the wireless industry are RF Micro Devices and Skyworks. LTCC modules and FR4 modules offer the wireless designer greater flexibility, as well as increasing throughput of manufacturing by buying complete circuit modules ready to place in the printed circuit board.  Both LTCC module and FR4 module producers are driving demand for the new 0201 case size capacitors and resistors at this time so they can create increasingly smaller modules.LTCC modules lend themselves more toward electronic circuit protection integration because of the ceramic nature of the substrate (mostly electronic glass mixed with ceramic), which welcomes similar ceramic technologies, such as varistors and ceramic PTC thermistors for overvoltage and overcurrent attributes added to the LTCC module.  This would be applicable in both wireless and automotive subassemblies.  The ceramic materials used in varistors and ceramic PTC for example can be co-fired with the LTCC tape.  Major LTCC suppliers with knowledge of circuit protection have suggested manufacturing the entire subscriber line interface card used in telecom infrastructure switches using LTCC. Modularization trends in wireless and automotive will begin to have a greater impact on the varistor markets in the next few years.  Companies that are well positioned to take advantage of this are TDK-EPCOS, CTS Wireless, Kyocera, TDK and Murata who are involved in both LTCC module assemblies and also product circuit protection component devices. With respect to zinc-oxide varistor materials, they have been proven to be co-fireable with ceramics and therefore readily lend themselves to the LTCC process.

Strategic Acquisitions Affecting Global Market Share: There have been some significant acquisitions in the global electronic circuit protection industry that have affected global market shares in the sector over the past ten years- these include:

  • TDK’s Purchase of EPCOS: TDK’s merger with EPCOS has cerated the largest passive component company in the world for 2011.  The combined positioning in circuit protection components should not be underestimated.  The company now has achived major share in metal oxide varistor and NTC thermistor products.
  • Littelfuse’s Purchase of Harris Suprression Products Division: Littelfuse’s entry into the global varistor market was through the purchase of Harris Semiconductors- Suppression Products Division many years ago.
  • Vishay’s Purchase of BCComponents: Vishay Intertechnology effectively extended their circuit protection product portfolio in 2003 through their purchase of Bccomponents, which are the former operations of Philips Passive Components.  Philips sold the business to Compass, a private investment firm in 1999, and Vishay bought the assets for them.  BCC included aluminum electrolytic capacitors, DC film capacitors, nickel-chromium resistors and non-linear resistors.  The non-linear resistor business which is located in Evere, Belgium is the most important part of the purchase as it related to this report.  The Evere plant (which had between $40 and $50 million in sales by itself) produces ceramic NTC and PTC thermistors as well as metal oxide varistors and humidity sensors.  This complimented Vishay’s current business as their Dale facilities in Nebraska and in Israel, which produce ceramic PTC and NTC thermistors already.  The combination of the varistor technology from the BCC Evere plant with the multilayered technology at Vishay-Vitramon may give Vishay an excellent platform for growth in the varistor markets, especially in their automotive accounts.

Raw Material Usage and Supply Issues: Paumanok notes that many suppliers of electronic circuit protection components are still endeared to the use of specific precious metals in the construction of these devices.  The most notable continued usage trend is in the use of palladium metal in multilayered varistor electrodes and in surge resistor pastes for line feed resistors. Manufacturers of MLVs and LFRs argue that palladium costs are not a major factor, but these similar manufacturers have transitioned away from palladium in favor of nickel in their ceramic capacitor businesses, so cost here is a factor. The price of palladium has been volatile over time. Over time we expect greater interest in base metal electrodes and base metal surge resistive pastes to help maintain profit margins in the face of inevitable long-term price erosion. Other raw materials that cause us concern include zinc, used in varistors.  The reader should appreciate that metal oxide varistors are created through the combination of zinc oxide ceramic materials and palladium- silver metallization.  This unique combination to volatile materials make varistors susceptible the price fluctuations due to raw nmaterial supply chian instability.

Value-Added & Application Specific Varistor Markets: As more commercial electronic subassembly production moves to Asia (with emphasis upon China), component vendors are now re-evaluating their markets in the United States, Western Europe and Japan to determine what will be left behind, and either organically tool their existing brick and mortar structures in these regions to sell to the markets that remain, or simply relocate production to China to take advantage of low production costs and the growing domestic markets in China.  Many companies with large sales volumes are of course doing both, especially if they are already global in nature. It is the general consensus that the American, Western European and Japanese markets will be smaller in value in the future (the near future as is evident already), but will be more profitable because the customers that remain will be producing value-added and application specific electronic subassemblies that have substantial profit margins and are not subject to moving to China (maybe to Mexico but not China). Product lines that are expected to remain in the USA, Western Europe and Japan include telecommunications infrastructure equipment, automotive electronic subassemblies, line voltage equipment (lighting ballasts, DC/DC converters, alarm systems), large home appliances, defense electronics, medical electronics, downhole pump electronics, mining electronics, high-end industrial electronics (motor controllers, variable speed drives) and instrumentation and control equipment.  Mass commercial products such as consumer audio and video imaging equipment, wireless handsets, personal computers and laptop computers, small home appliances and switch-mode power supplies will continue their mass movement away from the USA, Western Europe and Japan, primarily to China, but also to India, Korea, Vietnam, Philippines, and Thailand, and parts of Eastern Europe. In the instance of varistors, the market entry point is in high voltage applications, where disc varistors are the product of choice for circuit protection.  Many high voltage applications exist in defense electronics, power supplies and medical test and scan equipment worldwide. This is an important shift that must be contended with by major vendors of circuit protection components as the shift develops.  Certain companies have positioned themselves either organically or through acquisition to take advantage of these changes.  Value-added components require further testing, but have greater profit margins.  In many instances value-added testing requires greater capital investment but the testing can be applicable to multiple markets.  Such value-added testing would include heat, vibration, pressure, and corrosion resistance. In circuit protection of course there are added strenuous tests required to help subassembly manufacturers comply with Telcordia (Bellcore), UL, TUV and IEC requirements for surge protection. What readers of this report who are already involved in electronic circuit protection component markets, they must understand that other passive component vendors in the capacitor, resistor and inductor sectors are looking at circuit protection as one of the best opportunities for combining excellent profit margins with relatively high operating profit margins.  So Paumanok predicts there will be increased activity in mergers and acquisitions between traditional capacitor, resistor and inductor manufacturers and electronic circuit protection component manufacturers over time.

The Mass Movement To China: As we have noted in the previous paragraph, there is a mass movement of consumer related electronic subassemblies to South East Asia, with emphasis upon China. Paumanok now estimates that China will consume 35 to 40% of all electronic circuit protection components produced in the digital electronic sector in the Asian region in 2011.  Massive local production of wireless handsets, personal computers, laptop computers and consumer audio and video imaging products will continue to grow in China.  This will be led by increased Chinese production by the top contract electronic manufacturers (Solectron, SCI/Sanmina, Celestica, Acer, Flextronics) as they continue to look for ways to increase their profit margins.  Other brandname companies will continue to put assets in China, and there will also be domestic growth of indigenous Chinese customers (such as Huewei and Legend Computer). Large-scale electronic circuit protection component vendors have already identified this trend and have placed production facilities in either Taiwan or Mainland China or both.  Such companies include Littelfuse, TDK-EPCOS, Murata, Panasonic, Kyocera/AVX, and Vishay.

Key Growth Markets & Strategies For Component Vendors: Global markets that will continue to be stable for producers of electronic circuit protection components will be in the automotive electronic subassemblies markets, the large and small home appliance markets, and the line voltage equipment markets (with emphasis upon lighting ballasts, alarm systems, and switchmode power supplies).  Faster growth markets will continue to be in wireless communications devices as functionality increases and greater protection against ESD requires more circuit protection components per phone.  Additional rapid growth markets include flat panel displays, cable and ADSL modems (which have an interesting technical barrier for circuit protection as many circuit protection components have inherent inductance and capacitance which interferes with video signals).  Other fast growth markets will include the smaller DC/DC converter business (bricks), and of course the emerging telecommunications infrastructure markets for subscriber line interface card protection and cellular base station protection. Medical electronics will also continue to grow for applications in both medical test and scan markets (i.e. GE, Philips, Hitachi) and in medical implants (i.e. Medtronics, Guidant and St. Judes).  And defense electronics markets and aerospace markets will continue to grow for applications in avionics and in missile power up and guidance systems.  Other value-added growth markets will be in mining electronics and downhole pump electronics (especially for temperature probes employing NTC and/or PTC thermistors. Defense electronics is also a growth area as is its sister markets in aerospace engineering.  Defense markets will grow as global armies require less human interaction- to be replaced by more sophisticated electronic platforms ans solutions (UAV, UGV). Oilwell serviecs and mining service electronics are also key growth areas, as are class 7 and 8 offroad trucks.  More oil will be required and exploration electronics will key to that and to getting the most out of each well.  Mining electronics will boom as more rare earths are required to run electronics industries and metal industries in the face of increasingly tighter restrictions on Chinese exports.

Movements to Smart Grids and Renewable Energy Systems: Major Impact- The other key areas for growth will be in power transmission and distribution electronics for creation of smart grid technology worldwide.  This will have major positive impacts on thyristors, snubber capacitors, disc varistors, gas discharge tubes and especially industrial grade fuses.  Also, the augmentation of renewable energy systems, such as solar, wind and wave generation equipment also pose new and exciting challenges for circuit protection companies worldwide.  It is obvious from all major vendor’s websites and press releases that this is the key direction for many players.

Movement to USB 3.0: Major Impact- Another critical area of great growth in units will be in the transition to USB 3.0 ports from USB 2.0 ports.  The increased data rate  protocol as well as its backward compatability with USB 2.0 crates a more robust and better product, especially for transferring large data files in seconds.  We estimate that this will affect up to 2.8 billion USB devices wordwide (actually a small number compared to the number of circuit protection components on the market, but a nice overall bump for specific products- such as varistors, TVS diodes and polymer PTC thermistors. Electro-Static Discharge is a more pronounced threat to USB 3.0 ports. USB 3.0 has four additional data lines of high speed copper (5 Gbps) as well as the two original USB 2.0 data lines (480 Mbps). Also there is a higher current output available with USB 3.0 (up from .5A to .9A) requires more robust circuit protection components. Capacitance is key consideration for the new 3.0 USB and their circuit protection solution. Capacitance is ‘parasitic’ when the component is being used for protection of data lines and its capacitance degrades the integrity of the signal being sent. Therefore capacitance must be minimized while still maximizing the circuit protection function of the component. Based upon these specific requirements, we believe that varistors, TVS diodes and polymer PTC thermistors in sirface mount configurations (ultra-small case sizes) will be the products that will benefit the most from this transition.

Emerging Economies: Major Impact on Varistor Markets: The following list of countries illustrates the top “Emerging Economies” in the world today by ranking in terms of foreign direct investment according to the International Mnetary Fund.

1. China

2. India

3. Russia

4. Brazil

5. Mexico

6. Korea ROK

7. Indonesia

8. Turkey

9. Taiwan ROC

10. Poland

11. Thailand

12. South Africa

13. Egypt

14. Columbia

15. Malaysia

The reader will note that the key emerging economies in the Asia-Pacific ARegion include China, India, Korea, Indonesia, Taiwan, Thailand and Malaysia; while the key emerging economies in the Americas include Brazil, Mexico, and Columbia; and the key emerging economies in Europe include Russia, Turkey and Poland. Based upon current market data associated with varistor consumption, Paumanok estimates that emerging economies accounted for 34% of total varistor consumption in 2011, while established economies accounted for 66%.  Over the next five years we expect fuse demand in emerging economies to grow by 6.2% on an average annual basis, while varistor demand in established economies should grow by about 4% per year.

For further reading:

1) ” Metal Oxide Varistors: World Markets, Technologies & Opportunities: 2012-2016″

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