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Capacitor Crunch: How Investors Could Profit from a Global Shortage

Written by Jason Stutman
Posted December 22, 2018 at 7:00PM

Our world runs on electricity. And we don’t just mean light bulbs — practically everything around us consumes flowing electrons through semiconductors these days.

It’s what runs our computers, smartphones, and even our cars. Electricity has been around for as long as any of us can remember, but more recently there has been a push to connect everything. That’s a trend we all have come to know as the Internet of Things.

Now, ultimately, there are two big reasons for this ongoing shift.

The first and most obvious is convenience and efficiency. Today’s electronics make our lives more productive than anyone could have ever imagined. Connected thermostats save us money on our utility bills, and connected doorbells allow us to keep an eye on our homes when we’re away.

Perhaps more importantly, though, price deflation has made the electronics that surround us increasingly more affordable. As time has gone on, companies have gotten better and better at making basic electronic components.

We can all remember stories of $4,000 IBM desktops in the 1980s, a price tag made all the more incredible when one considers just how powerful the “computers” we all carry around in our pockets today truly are.

Yet the exponential price drop in electronic components was bound to bite us eventually — manufacturers have to eat, after all. And as a result, one key component in practically every electronic device on the planet is now running in short supply.

I’m talking about capacitors. You won’t hear about this shortage in the mainstream media, but it will have major ramifications, not just for consumers but for investors as well.

A Global Capacitor Shortage

A capacitor is simply a “mini-battery” that adds increased electronic capacitance to a circuit.

You’ve probably seen one before:

Capacitors allow electronic devices to delay the release of electricity along a circuit, something that is vital to modern electronics. But low margins have recently forced out the world’s biggest capacitor makers, sparking a global shortage.

You see, consumer-facing billion-dollar tech brands don’t bother making simple electronic components like capacitors. Companies like Apple simply buy them on the open market by the billions (perhaps trillions...).

Apple lets Asian-based manufacturers like Samsung, Murata, and Taiyo Yuden (which, combined, currently control 60% of the market) make capacitors for them. The smartphone next to you has hundreds of the most common type: multi-layered ceramic capacitors (MLCC for short).

But these major suppliers, subject to low margins, have recently decided to pull out of the market entirely. The result is a critical shortage of capacitors through 2020 and a one-time investment opportunity for those in the know...

The Timing Couldn’t Be Worse

Simply put, this is the wrong time to be short of an essential, basic technological component. For years, end-buyers like Apple have seen double-digit price declines and immediate delivery as manufacturers ramped up production and became more and more efficient.

The situation has now reversed, with prices starting to firm while the shortage becomes more and more of a problem for the first time since 1996.

Vendors have cut back on producing MLCCs, as the world is demanding more capacitors than ever. The cell phone industry alone is under a strain, as the number of global smartphone users will approach 5 billion this year.

Now, with the advent of the “Internet of Things” (IoT), driverless cars, and smartwatches, we could be in some real trouble.

What Does This All Mean?

To put it simply, the exodus of the world’s largest capacitor makers, coupled with rising demand, means a gold mine for the smaller guys sticking it out.

The CEO of one tiny MLCC manufacturer recently opined to analysts on a conference call last month: “We can’t deliver more, but we’re delivering what we have... These capacity increases are lagging 18 months behind the demand.”

Another executive recently pointed out that the company plans to increase production by 20% this year but that the manufacturers of the equipment used to make capacitors are also lagging far behind market demand.

Anyone hoping for a rapid ramp-up in MLCC production from the market is likely to be disappointed. All the while, these smaller players will reap the rewards of a golden supply-demand scenario.

Which is why we’re excited to announce that after conducting a deep-dive on the entire conductor market, we didn’t just find one... we found THREE. They are all lean, mean, and already sport solid profit margins.

For all the details on these companies and events in the semiconductor space, click here.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

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