Chip resistors

Increasing worldwide demand for resistors is buoying an industry battered by narrow profit margins amid tightening competition and a strengthening yuan.

Rising production cost and falling prices in the face of a stronger yuan and global financial crisis are the major challenges facing China’s suppliers of resistors. Tighter competition in the line has been thinning makers’ profit margins in recent years, and the expected slowdown in demand as the world responds to the current economic slowdown is expected to further erode sales.

Despite the gloomy outlook, makers remain positive of an industry growth. This optimism stems from increasing demand for resistors worldwide, driven primarily by the consumer electronics, communications, automotive, computer and military sectors.

China is currently the world’s leading supplier of resistors. Statistics from the China Electronic Component Association (CECA) puts China’s overall output of resistors at 708 billion units in 2008, a huge jump from 410 billion in 2005, during which time China accounted for 30 percent of global supply.

Since 2005, China’s production of resistors has been growing at an annual rate of 20 percent. For 2009, CECA forecasts see production reaching 850 billion units.

China’s resistor industry gained substantial growth during the region’s 10th Five-Year Plan (2001-2005) period. After joining the World Trade Organization in 2001, China has managed to consolidate its position in the global resistor market through its continued effort in developing export trade and reinventing itself in terms of product development.

Product development efforts will center mainly on delivering high precision, high frequency and low temperature coefficient. Makers will also focus on the development of lead-free models and units with smaller form factors.

For chip resistors, high-frequency and high-power models will lead product development efforts in the coming months. Makers will also continue launching sensitive chip resistors, which include thermistors, piezoresistors and gas-sensitive resistors. More suppliers are adopting thin-film technology in chip resistor production.

In the area of lead resistors, carbon-film resistors and metal-film resistors are two of the most widely available axial models from China suppliers. With the technology used for film resistors quite mature, makers are focusing on quality and cost control to become more competitive in the international market. For instance, due to higher copper costs, many makers are beginning to use iron lead to maintain their profit margins.

Other suppliers focus on developing precision wirewound resistors and cement resistors, as both the demand and margins for these products are high.

The trend in metal-film resistors is toward models with low temperature coefficient and high precision. Many makers have started using advanced production equipment from Japan and European Union countries. Suppliers are, thus, focusing on the selection of imported high-quality raw materials, such as nickel chromium, tantalum nitride and jeweller’s putty.

At present, metal-film resistors made in China have a typical initial precision of 0.1 to 1 percent, temperature coefficient of resistance (TCR) ranging from 10ppm/°C to 100ppm/°C and resistance from 10Ω to 301kΩ.

To cater to the high-end market, some makers have developed high-power models with resistance below 1Ω, power of up to 3W, TCR below 10ppm/°C and precision of 0.1 percent. However, since the development of these models requires a long testing cycle and poses difficulty in maintaining low defect rates, prices of high-precision metal-film resistors are still high.

Many China makers focus on the EE series of metal-film resistors, which features very high precision at 0.01 to 1 percent, low TCR ranging from 5ppm/°C to 50ppm/°C and high stability. Generally, models available have resistance from 10Ω to 10MΩ, -65°C to 175°C working temperature, high heat dissipation, low noise and 50W maximum power.

Suppliers of wirewound resistors are also working on models with high precision and low temperature coefficient. Typical wirewound resistors from China feature precision of less than 5 percent and TCR of 20ppm/d°C, 50ppm/°C and 100ppm/°C. Makers aim to produce models with a TCR of 20ppm/°C to be able to penetrate the high-end market.

For cement resistors, the trend is generally toward units with smaller dimensions, high reliability at high temperatures, high heat dissipation, low noise and low annual shift of resistance value. Makers are also developing models with anti-humidity and anti-shock features.

Chip resistors currently make up about 85 percent of China’s total resistor output. These will likely continue dominance in output and exports in the coming years as more makers substantially expand their chip resistor production or shift their production focus to this line in preparation for rising demand.

Driving up worldwide demand for chip resistors are the industries of mobile communication, PC and peripherals, digital consumer electronics and automotive electronics. China’s chip resistor suppliers have a rosy outlook for chip resistors, especially given rising demand for smaller units for use in portable electronic devices.

Chip resistors from China come in varying sizes. Currently leading the region’s chip resistor production is the 0603 chip resistor, which is used in consumer electronic, IT and communication products. The trend toward smaller form factors, however, will spur the production of smaller chip resistors, such as the 0402.

Makers expect the supply of 0603 and larger resistors—including 0805 and 1206 types—however, to start declining in the next few months as more suppliers shift to producing 0402 chip resistors.

0402 models are increasingly preferred for use in mobile phones, MP3 and MP4 players, digital cameras, digital camcorders, portable GPS devices and laptops. With the growing adoption of smaller form factors in mobile phones and many digital devices, makers estimate that 80 percent of the chip resistors that will be used in these products will be 0402 types.

China manufacturers are also planning to boost the development of 0201 resistors, not only due to the increased demand for new-generation mobile phones, MP4 players and RF devices but also because of the better profit margins these devices bring in. A few suppliers will begin pilot production of 0201 chip resistors in 2009.

The rest of China’s resistor production consists of lead-type models. These products are widely used in many consumer electronic products, industry devices and children’s toys.

Lead-type resistors will also continue to be used for high-power applications, as makers of chip resistors are still unable to achieve a high power rating of more than 3W to support such applications.

Thus, despite tight competition with chip resistors, China suppliers expect the market for lead-type resistors to remain stable in the future. The 38.4 percent growth in the global electronics market projected by Philips is expected to boost demand for lead-type components worldwide. In particular, China’s output and exports of metal-film resistors are predicted to increase due to the rising demand from the space flight, aviation and military sectors.

China continues to attract companies from all over the globe. In fact, the world’s PC, communications and digital electronic device makers are increasingly shifting production to the country. As a result, all leading Taiwan chip resistor makers have established backend and packaging bases on the mainland. These makers have also upgraded their facilities to full processing plants.

There are less than 100 resistor makers scattered in 18 provinces and big cities in China. CECA statistics show that there are more than 60 local suppliers that manufacture carbon-film resistors; more than 40 suppliers engaged in the production of metal-film resistors; 30 makers that produce metal oxide film resistors; and more than 30 manufacturers, mostly Taiwan-invested companies, involved in chip resistor production.

The country’s supplier base comprises local makers, as well as Taiwan- and Japan-invested companies. The latter targets the high-end market, while most local suppliers produce products for the low-end segment.

The majority of makers are located in the Yangtze River and Pearl River deltas, specifically in the cities of Shanghai, Suzhou in Jiangsu province, Dongguan and Shenzhen in Guangdong, and Tianjin. Guangdong and Jiangsu each have nearly 30 resistor makers. Shanghai and Tianjin each have six manufacturers. Other companies can also be found in Zhejiang.

China exports 90 percent of its total resistor output, and imports the same amount or even more. The trade deficit arises due to the country’s high demand for chip resistors, specifically high-end resistors, even as it supplies low-end and midrange units.

China ships its resistors to more than 60 countries and regions worldwide. Most of the country’s exporters comply with ISO 9002 requirements. At present, the United States, the EU, Southeast Asia, India and Japan are the major export destinations of resistors from China.

Moving forward, China makers plan to explore niche markets in Russia, Israel, Turkey, Brazil and South Korea.

Resistor suppliers in Hong Kong are gearing up for a number of challenges, foremost of which is the rising raw material cost. As most Hong Kong suppliers are small operations, high fixed costs have put many companies at a disadvantage against large Taiwan and Japan makers, whose production capacity exceeds 10 billion units per month—considered the threshold figure for profitability.

For thick-film resistors, in particular, the costs of silver and glass as well as processes such as termination, laser trimming and packing have significantly risen. Although the cost of silver and ceramics improved in Q3 2008, the reductions were offset by higher labor and transportation costs. Hong Kong suppliers are unable to pass the increase in manufacturing outlay on to buyers due to tight price competition with their counterparts in Taiwan and Japan.

The resultant severe profit squeeze has many Hong Kong suppliers shifting from manufacturing to trading for increasingly nonprofitable resistor types such as axial and thick-film chip resistors. Meanwhile, in-house production is continued for steadier product lines such as thin-film chip resistors, resistor arrays and varistors.

Makers that will continue producing resistors are finding ways to counteract the effects of rising manufacturing cost. Some makers have ceased printing markings on their resistors. More suppliers are also increasingly focusing on products with better profit margins, with some converting a greater part of their production lines from thick-film resistors to high-accuracy, higher-margin thin-film resistors. Some makers will continue producing resistor arrays, which are generally more profitable than single chips.

More companies are narrowing their product range to emphasize the most in-demand items. Some suppliers have concentrated on 100Ω, 1kΩ, 10kΩ, 100kΩ and 1MΩ resistors in 0402 and 0603 sizes.

Large suppliers, meanwhile, will generally continue to offer a wider range of resistors by virtue of their large production capacity. Some of these makers usually offer chip resistors, carbon-film resistors, metal-film resistors, metal oxide film resistors, wirewound resistors, cement resistors, fusible resistors, metal electrode leadless face resistors and resistor arrays.

Customs data reveals that Hong Kong exported 2.8 million kilograms of resistors, valued at about $153 million, during the first seven months of 2008. Chip resistors dominate Hong Kong export shipments. Meanwhile, output of axial resistors continues to slide, with shipments mostly confined to emerging markets.

Taiwan is by far the world’s largest producer of chip resistors with about 50 percent share of global shipments. Yageo Corp., the largest passive component maker on the island, makes up 30 percent of global supply. In 2000, Yageo acquired Philips’ passive component division and has since taken the lead in chip resistor production.

There are about 20 to 30 active makers of resistors in Taiwan. Most suppliers are veterans in the industry with 20 to 40 years of manufacturing experience. The majority of makers are large companies able to conduct mass production.

Suppliers in Taiwan offer a complete selection of resistors, which comprises carbon-film resistors, metal-film resistors, wirewound resistors, ceramic resistors and chip resistors. Chip resistor is the most popular type produced by Taiwan manufacturers. Some makers have released power wirewound chip resistor models resistant to heat, humidity and insulation. Suppliers have also introduced surface-mount resistors.

Makers’ R&D efforts center on improving product reliability. To achieve high reliability, Taiwan suppliers are enhancing their products’ mechanical strength and electrical stability. Product development plans also focus on models with smaller form factors, specifically for chip resistors.

As the line is considered a low-profit-margin industry, Taiwan makers face the challenge of controlling cost. Many suppliers have set up factories in mainland China to avail of lower land and labor costs. Suppliers are also continuing their efforts to reduce manufacturing cost through mass production, production process improvements and adoption of the latest technologies.