It's not capacitance happenstance that KEMET is one of the world's largest makers of tantalum and multilayer ceramic capacitors -- devices that store, filter, and regulate electrical energy and that are used in virtually all electronic devices. KEMET makes about 35 billion units a year; its focus is on surface-mount capacitors, including specialized units for aerospace, automotive, communications systems, computers, and military equipment. The company also makes solid aluminum capacitors for high-frequency applications. KEMET gets more than three-quarters of its sales outside the US.
KEMET sells its vast array of products (it has nearly 250,000 distinct part configurations) primarily to manufacturers, such as Alcatel-Lucent, Cisco, Dell, Hewlett-Packard, IBM, and Intel. About half of sales are to electronics distributors, including TTI, which represents more than 10% of sales.
Net sales rose nearly 40% in 2011 compared with 2010 thanks mainly to more demand for capacitors behind the global economic recovery. By segment, tantalum (nearly half of revenue) rose more than 40%, film and electrolytic (about a third of revenue) was up 45%, and ceramic (20% of revenue) increased nearly a quarter. Across segments, KEMET introduced more than 14,900 new products in 2011. Customized products represent 36% of sales.
Both tantalum and ceramic did well partly because of strong sales in the Americas and Europe, the Middle East, and Africa (EMEA). Film and electrolytic increased in response to strong demand from automotive and industrial customers, especially in EMEA and Asia/Pacific.
The tantalum segment makes solid tantalum and aluminum capacitors for the automotive, computing, consumer, medical, military, and telecommunications markets. Film and electrolytic provides film, paper, and wet aluminum electrolytic capacitors for the industrial, automotive, consumer, and telecom markets. Ceramic manufactures multilayer ceramic capacitors for the aerospace, automotive, computing, defense, industrial, and medical markets.
One focus of the film and electrolytic segment is power film capacitors for alternative energy products and green technologies, including hybrid electric vehicles, in the US. In 2013 the company plans to begin producing electrolytic capacitors for such products.
One challenge for the company is the continuing fluctuation in prices and availability for certain raw materials. KEMET does not have long-term supply agreements with its materials suppliers, forecasting tantalum demand for up to 12 weeks and making purchase agreements for up to six months at a time. There are a limited number of suppliers processing tantalum ore into capacitor-grade tantalum powder.
Pursuant to a strategy of vertically integrating operations and gaining better control of supply sources, in 2012 KEMET bought tantalum-powder processor Niotan for about $75 million ($30 million in cash and deferred payments of $45 million over a 30 month period after closing) from an affiliate of Denham Capital Management. The new subsidiary, called KEMET Blue Power Corp., is the largest producer of tantalum capacitor powder in the western hemisphere.
Also that year it embarked on its most ambitious deal yet when it agreed to acquire a 34% economic interest and 51% voting interest in capacitor manufacturer NEC TOKIN (NT) from Japan's NEC Corporation. NT pulled in about $755 million in revenue in fiscal 2011. Among KEMET's initial plans with NT is a joint venture that will take advantage of the companies' combined strengths in manufacturing and product development. After KEMET first payment of $50 million, it will spend another $50 million in 2014 for an additional 15% economic interest, making its total stake at just under 50%, while its voting interest would remain at 51%. A third payment will follow, based on NT's operating results, with a view to gaining 100% ownership of NT.
The company also struggles at times with the cost of palladium, a precious metal used in multilayer ceramic capacitors (MLCCs). Mined in Russia and South Africa, palladium can command prices that wildly fluctuate due to demand. In 2011 the price swung between $415 and $855 a troy ounce. KEMET is actively trying to find ways to reduce the amount of palladium needed to make MLCCs as a result.
KEMET also uses aluminum and silver, two materials that haven't posed any challenges in availability and stable pricing.
KEMET operates more than 20 manufacturing facilities in the US, China, Europe, Indonesia, and Mexico, as well as product innovation centers in the US and Sweden. In recent restructuring the company has moved some manufacturing operations from the US to Mexico and China. US manufacturing is focused on early-stage production of new and specialty products primarily for North American customers. The company also plans to consolidate manufacturing facilities in Italy. – less