Power supply production in China starts to get back to normal

Supply of AC-DC converters and DC-DC modules should not be a problem for buyers as production of power supplies has resumed.

Buyers can expect normal lead times, ample availability and falling prices for most power supplies for the rest of the year, despite the impact that Coronavirus has had on the overall electronics supply chain including power supply manufacturers.

As of early April, power supply production in China resumed and was ramping up. About 60-70 per cent of all power supplies are made in China, according to Mohan Mankikar, president of Micro-Tech Consultants, a power supply research firm based in Santa Rosa, Calif. Most power supply manufacturing in China is in Shanghai and Shenzhen, which is “pretty far away from Wuhan,” where the outbreak of Covid-19 originated, said Mankikar.

“Christoph Wolf, president RECOM Power, Inc., said RECOM operates one factory in Xiamen, China and two in Taiwan. “The Taiwan factories were minimally impacted. Our Chinese factory is almost running at full capacity, as the government lifted restrictions over there” he said in the first week of April. Wolf added RECOM’s bookings and billing were strong and lead times have not been affected. “However component availability for our factories may become an issue moving forward, because of restrictions in other Asian countries where these components are made,” said Wolf. This could impact lead times in the future across the industry.”

Power supply manufacturing in China “may be OK, but it is not fantastic,” said Mankikar. The bigger issue is the impact that coronavirus is having on demand. Many companies have shut down, furloughing or laying off workers. With no income, sales of televisions, mobile phones, computers, etc have declined. That obviously means less demand for power supplies.

“You can make all the power supplies that you want, but if there’s nobody there to buy them it doesn’t matter,” said Mankikar. He said the overall impact of coronavirus on the power supply market will depend on the duration of the pandemic. “China seems to have recovered relatively quickly” but countries in other regions were still being ravaged by COVID-19 in
early April and it was unknown when other regions would recover.

Recovery will happen
Despite the pandemic, the long-term outlook for the global power supply industry is positive, according to Mankikar. The switching power supply market grew from about $30.1 billion in 2018 to $31.6 billion in 2019, he said. Growth could have been stronger, but inventory levels were high in the electronics supply chain.

“In 2018 a lot of our distributors invested in inventory,” said Wolf. “Some of them built up too much inventory, which led to fewer orders in 2019. But the point of sale level was slightly above 2018,” said Wolf.

The inventory has been worked off and bookings improved at the end of the year and prior to the COVID-19 outbreak, RECOM was expecting business to be better in 2020. “The outlook for this year was pretty good on growth side but that was pre-coronavirus.”

However, RECOM has a broad customer base which should help the company weather the storm. “Our customer base is diverse and power supplies are needed in every single application,” said Wolf. It has a strong presence in medical and industrial IoT.

“Our bread-and-butter businesses is DC-DC converters. That continues to be very strong, but the biggest growth that we see is on the AC-DC modules,” said Wolf.

RECOM and other power supply manufacturers may see some sales growth in 2020 despite of the pandemic. Micro-Tech Consultants is forecasting 1.1 per cent growth as sales rise from $31.6 billion in 2019 to about $3.2 billion in 2020. However, sales growth may end up being flat or down depending on the impact of coronavirus, said Mankikar. Longer term, Mankikar says annual sales growth for power supplies would be about 2.7 per cent from 2019 through 2024, he said.

Mankikar points out that power supplies, which include AC-DC and DC-DC converters, is a mature market. “It is one of the oldest electronics industries. It started in 1945 at the end of World War II and is now 75 years old,” he said. It is mature and mature industries tend to have lower annual sales growth rates. The power supplies business is steady, but double-digit growth is highly probable. Low to mid-single digit growth is more likely.

While sales growth in power supplies is steady, sales from certain customer segments are higher than others and sometimes reach double-digit thresholds. For instance, some manufacturers that sell power supplies for LED lighting applications have grown 15 per cent in some years.

Consumer electronics, which includes mobile phones, desktop computers, laptops, accounts for about 30 per cent of power supply revenue and is the largest customer segment for power supplies, according to Micro-Tech Consultants. Power supply sales to the consumer segments tends to be in the low-single digits.

Transportation, which includes cars, trucks and trains, is the second biggest segment, representing about 20 per cent of power supply revenue, said Mankikar. Computing and office equipment, which includes servers, buys about 13 per cent of all power supplies as measured by revenue, he said.

In 2019, transportation was a key driver for power supply sales. Much of power supply demand in transportation is for “battery chargers used for electric vehicles in different locations,” said Mankikar. Some chargers are used in cars and trucks, while others are used in public places such as charging stations. Some are used at residences and in office parking lots, and demand for them continues to grow, he said.

The mobile devices and chargers market is estimated to be the largest segment of AC-DC and DC-DC merchant power supplies, accounting for 29 per cent of total revenues of AC-DC and DC-DC market, according to researcher OMDIA. However, the market is high-volume, low-margin nature and its share is expected to drop to 23 per cent of the total power supply market in 2023 because of stagnant growth and falling prices, the researcher said. Mobile device and chargers market will have a five-year compound annual growth rate of -2.1 per cent from 2019-2023, according to OMDIA.

The 5G bump
A key driver for power supply sales growth is 5G infrastructure, but it may be a short-term driver. “With telecom you get a big boost as the infrastructure is built, but then growth flattens” once the networks are completed and all the equipment is place, said Mankikar.

The industrial segment continues to be an important segment for power supply manufacturers. “It is pretty stable. It grew about 2.5 per cent last year because it is a mature segment,” said Mankikar. However, it may be negatively impacted this year because of the decline in the oil and gas industry as energy prices fall.

While industrial and telecommunications are traditional segments for power supplies, “new applications for power supplies are always occurring and there’s so much diversity in applications,” said Mankikar. “There are smart speakers, artificial intelligence, machine learning applications and home and business security applications that continue to “pop up all the time and all of them require power supplies,
he noted.

One application that has had strong growth in recent years is LED lighting systems. Many power supply manufacturers build LED drivers for such lighting systems. An LED driver is a self-contained power supply which regulates the power required for an LED or array of LEDs. Because LEDs are low energy lighting devices with long lifespans, they require specialized
power supplies.

Wolfe said RECOM supplies LED drivers for some applications. “LED drivers are dominated by Asian suppliers. However, there are a lot of companies that make intelligent lighting controls and do a lot more than just controlling the lights. They are doing other IoT functions. That’s where we’re seeing the growth in the Americas,” he said.

Manufacturers building power supply products for lighting systems manufacturers posted strong growth in 2017 and 2018, but business flattened in 2019.

The LED power supply segment was “going gangbusters in 2018 with a 15 per cent growth rate,” but sales in the segment went down significantly in 2019, said Mankikar. “I don’t know if it’s a one-year deal or if it’s a trend. There’s a company called Mean Well which grew to a $1 billion company in 2018. Last year its sales remained flat. It was a big surprise,” he said.

A Chinese company called MOSO Power makes LED drivers .The company had sales of $250 million in 2017, $190 million in 2018 and $181 last year. It is unclear why MOSO’s LED drivers sales have declined, said Mankikar.

However, it is likely that in the long-term, LED lighting systems will continue to be an important segment for power supply manufacturers. LED lighting is projected to be the fastest-growing application sector in revenue terms from 2018 to 2023, according to researcher OMDIA. The market for merchant power supplies in LED lighting application was about $5.6 billion in 2018, accounting for 25 per cent of the total market. It is projected to increase to $7.6 billion in 2023. LEDs will account for 31 per cent of the total power supply market in 2023, the researcher said.

Supply will meet demand
While there are many traditional and new applications for power supplies, the good news for electronics purchasers is there likely will be ample supply to meet demand for the foreseeable future. With adequate supply, buyers can expect short lead times and modest price declines through the rest of the year and probably longer.

There are many large, established power supply manufacturers such as Delta, Artesyn and TDK-Lambda, among others, as well as thousands of smaller power supply manufacturers. Some specialize in power supplies for certain types of product.

In addition, it’s likely that new power supply manufacturers will go into business. “Power supply design is not that difficult and it does not need a lot of capital equipment,” said Mankikar. “It’s not that difficult to get started. You may not become a big company, but you can get into the business,” he said.

However, while some new power supply companies will form, there could be some mergers and acquisitions over the next several years. While there has not been much consolidation with power supply manufacturers compared to other segments of the electronics industry, there are indications that may change.

“I see the power supply market getting more and more consolidated, but it is gradual” said Dinesh Kithany, senior principal analyst, wireless power supplies for researcher OMDIA. He noted that in 2017 the top 10 companies had about 42 per cent of all power supply sales. In 2019 that grew to 45 per cent and that percentage will likely continue to increase. One reason that the big are getting bigger is the top 10 companies are acquiring some smaller power supply manufacturers.

“There is a change in the power supply landscape occurring,” said Kithany. The big players are buying smaller companies and I’m expecting more and more mergers and acquisitions to happen in the power supply market,” he said.

“Larger companies may be active with acquisitions because they want to expand within the market, within the same sector, or expand into new applications,” he said.

A power supply manufacturer that doesn’t supply much to the medical equipment or solid-state lighting industries may acquire a smaller company that does. Some small niche power supply manufacturers that are growing fast because of their narrow focus may be the targets of larger power supply manufacturers.