Yageo Corporation, founded in 1977, is now eyeing the growing EV market. Long a manufacturer of passive components such as capacitors, resistors and inductors, since 2018 Yageo has gone on a shopping spree. In a span of four years it acquired four companies in an effort to boost its portfolio and prepare the company for global competitions.
This year, it took the key step to partner with Foxconn, the world’s largest electronics contract manufacturer, to co-found a semiconductor company dedicated to power and analog devices. Pierre Chen, founder and CEO of Yageo, estimated that Yageo will spend 33% of its EBITA on capacity expansion this year, followed by 28% in 2022. After that, it will drop to approximately 20 percent, and Yageo’s capacity expansion will be mostly completed as well. It will be sufficient to support the company’s growth for the next three to five years.
An acquisition spree to reduce reliance on China
So far, Yageo’s strategy has been working. Back in 2017, standard products accounted for 70% of Yageo’s revenue while customized products represented only 30%. Since acquiring Pulse Electronics and Kemet Corporation, both longstanding electronic component makers, and integrating with their management teams , as high as 75% of Yageo’s revenue have stemmed from high-end customized products used in a wide variety of applications, including industry, aerospace, data centers and IoT. By 2023, Yageo expects the number to reach 80%.
In addition, the acquisitions have also boosted Yageo’s market share, and closed the gaps with its major competitors. Yageo is already the world’s third largest maker of passive components. In terms of resistors and tantalum capacitors, which together makes up 39% of Yageo’s revenue, the company successfully obtained the largest market share after acquiring Kemet. After acquiring Chilisin Electronics Corp., the world’s third largest provider of inductors, Yageo have also secured its foothold in this sector.
In the market for Multi-Layer Ceramic Capacitors (MLCC) though, which represents 29% of the company’s revenue, it only ranks the third, falling behind Japanese competitors TDK Corporation and Murata Manufacturing Co. Nevertheless, according to Chen, Yageo’s acquisitions have helped to boost its gross margin, closing ranks with Murata.
Most important of all, Yageo has struggled to reduce its dependency on the Chinese market where intense price competition have chronically lowered the gross margins. The sales channels gained through Yageo’s acquisitions, thankfully, have successfully decoupled its main revenues from the Chinese market, especially when Kemet and Pulse have brought Yageo in contact with Tier 1 and Tier 2 automotive suppliers. In fact, according to Chen, 2/3 of Yageo’s core management team are sourced from Kemet and Pulse. The sales department is especially led by Kemet’s managers.
Next goal: total solution provider
Considering immense application potential brought by the Foxconn-initiated MIH Consortium, Yageo’s semiconductor joint venture with Foxconn might be the missing puzzle that both companies have long coveted.
Yageo has long sought to eventually become a solution provider instead of a mere component supplier. As Chen sees it, it makes little sense when passive components only account for less than 3% of a product’s cost structure, but a company has to manage a network of 30-40 suppliers for that. In the course of supply chain optimization, according to Chen, Yageo will benefit from transforming into a total solution provider, given its leading position in the industry. So far, there has been no total solution provider in the passive component industry.
Meanwhile, the success of Foxconn’s EV strategy depends on a good entry strategy into the global market. At the same time, the onset of EV has given many electronics makers the hope to supplant Tier 1 and Tier 2 automotive suppliers, and both Foxconn and Yageo, in all likelihood, have harbored similar ambitions. In this context, the semiconductor venture between the two can provide Foxconn the international sales channels it needs, while Yageo, moving from manufacturing passive to active components, can add one more expertise to its skill set.