Demand remains strong, albeit down from its peak in April and May of this year. While we don't believe there was rampant double ordering it is evident that distributors beefed up inventories and OEM/EMS customers pipelined for at least 90 to 120 days. Component manufacturers have brought back some capacity, but we believe they have been conservative to avoid "over-capacity" and inflated overheads. Raw material prices in general have stabilized with the exception of Tantalum and some grades of aluminum foils. However, other manufacturing costs are still rising and could offset raw material costs. Labor rates in China are up significantly along with utility and freight costs. Buyers looking for "quality" components out of Asia will be hard pressed to find "bargains". Price increases will slow or level off, but we don't anticipate the bottom dropping out as it did in 2001. The major component makers are under pressure to maintain profitability and keep capacity stable.

Demand will remain robust from IT infrastructure products, security, medical, automotive and power management applications. Consumer and home appliance products may soften but personal communication devices including cell phones, notebook computers, internet access products and remote monitoring devices will proliferate. With the exception of electronic games and some novelty devices electronic products have moved from discretionary to necessity. Economic setbacks will stall replacement or upgraded product purchasing, but this will create pent up demand to drive an eventual up cycle.

Design opportunities will remain strong for longer life, miniaturized and integrated components.

ALUMINUM ELECTROLYIC CAPACITORS
 Lead times and pricing will stabilize for general purpose components (12 to 14 weeks on average). Large size aluminum capacitors will still show instability in price and delivery. There is limited production on some SMT aluminum sizes incorporating high C/V ratings; e.g. 12.5X14, 16X17, 18X17 and 18X22 case sizes (20 to 24 weeks).

 Higher quality components are being designed in to more critical applications including telecom/datacom, transportation, medical, power management and test equipment. Longer life components (3,000 to 10,000 hours) along with higher temperature ratings (105°C to 150°C) and soldering profiles need special materials and manufacturing processes. We believe there are only a limited number of aluminum capacitor makers, including NIC, that can supply these types.

 Aluminum Electrolytic Capacitors are critical components. We are seeing some migration to more stable Solid Polymer aluminum in flat chip format in embedded computing, buck converters and graphics applications. NIC expanded "Hybrid Polymer" construction products, featuring solid polymer like performance with voltage ratings up to 100VDC, sees call-outs in POE, Motor Controller, Smart Metering, WiMax, and Gaming Machine applications.

 Giving the engineer multiple design options is a strategic advantage NIC offers.

TANTALUM CAPACITORS
 Tantalum ore and other related materials continue to be a concern. Allocations and shortages of raw materials is creating long lead times and unstable pricing.

 We still see deliveries in the 20 week plus range and no sign of improvement for the near future. Prices have been increased this year by an average of 20% and could continue to rise based on demand.

 Buyers should continue to be conservative with lead times and be prepared to pay spot market pricing for emergency deliveries and shortages.

 Tantalum Polymer capacitors are more stable in both price and delivery right now (12 to 14 weeks on average).

MLCC CERAMIC CAPACITORS
 Lead times and pricing are stabilizing with the exception of larger sizes and close tolerances. High C/V products still have longer lead times but are improving. Average deliveries are now in the 12 to 14 week range.

MAGNETICS
 Strong activity is still evident with inductors including many new designs and sampling. Lead times have improved, but "power types" can still run up to 20 weeks depending on quantities.

 For Chip Beads and multi-layer types 12 to 14 weeks is the norm. Wound coil types will run somewhat longer due to labor issues. Pricing is still firm with slight increases due to labor.

 The transition to automatic assembly of Power Inductors shapes a new path for a lower cost - higher reliability product not seen by present manual wound types.

RESISTORS
 The most basic building block of electronics equipment resistors are still showing strong activity and stretched lead times. Prices are stable but firm as makers have tired of price erosion over the last ten years.

 As demand softens lead times will come back in but we still think 10 to 12 weeks is reasonable due to anticipated raw material allocation. Prices for higher wattages and sizes could go up as most makers switch production to 0603, 0402 and 0201 sizes.

 Increased demand for precision thin film resistors for telecom, transportation, medical, power management and test equipment designs. For design-in quantities, reduced reel sizes (1K/reel) are being introduced.