What goes around, comes around - Opinion - lawsuits

Electronic News, Oct 7, 2002 by Shawn Wood

IT COMES WITH MORE THAN A little irony that leading tantalum material supplier Cabot Corp. has ended up on the receiving end of a lawsuit filed by capacitor supplier AVX Corp.

Several months ago, Cabot filed suit against customers Kemet Corp. and Vishay Intertechnology Inc. accusing them of not complying with the terms of their contracts.

The lesson for Cabot--or for any other company that tries to settle customer disputes in the courtroom--is that in the electronics supply chain, what goes around, comes around.

Cabot is the world's largest supplier of tantalum material, which primarily is used for the production of tantalum capacitors. In early August, AVX--a major tantalum capacitor maker and Cabot customer--announced it had filed a complaint against Cabot with the U.S. District Court in Massachusetts. AVX's suit alleged Cabot engaged in unfair and deceptive trade practices, breach of contract and other issues related to its existing supply agreement with Cabot for tantalum powder, ore and wire.

At the heart of the suit is Cabot's use of "take-or-pay" contracts with its tantalum capacitor customers. A take-or-pay contract is an agreement between a purchaser and a seller in which the buyer is obligated to pay some amount--even if the product or service paid for is not actually delivered.

Turnabout

Over the past few months, the shoe has been on the other foot; Cabot has been pursuing lawsuits against its customers, Kemet and Vishay, for allegedly refusing to take delivery of product, as agreed to in the take-or-pay contracts signed two years ago, when raw materials were scarce and customers were eager to lock-in supply.

The Cabot lawsuits contended that Kemet and Vishay agreed to purchase specific amounts of tantalum powder and tantalum wire over a set time period. However, with the market downturn in 2001, the capacitor makers allegedly told Cabot that they did not need the materials, according to the lawsuits.

Cabot and Vishay were able to settle their dispute without going to court. Several issues between Cabot and Kemet were recently resolved in court.

When Cabot sued Kemet and Vishay, there was much speculation about why it did not simultaneously file suit against AVX. The obvious reason was that Cabot believed AVX was being a good customer and was buying tantalum in sufficient volume to shield itself against litigation.

However, AVX's lawsuit claiming unfair and deceptive trade practices has spurred speculation that the real reason may be that Cabot was unwilling to upset the apple cart by taking matters to court.

Live by the Sword, Die by the Sword

Prior to Cabot's lawsuits against Kemet and Vishay, AVX most likely would not have used the court as a method of resolving a dispute with its supplier. However, it was Cabot that chose the court as its arena, and AVX simply is responding in kind.

This is only one of the unintended consequences of Cabot suing its customers.

AVX's claim that Cabot has been deceptive may add credence to the belief among capacitor buyers that the tantalum capacitor market continues to be unstable. This will contribute to the tantalum capacitor industry's downward spiral.

Buyers are continuing to shun tantalum capacitors, even though the price of small-case tantalum capacitors has dropped by more than 50 percent since its peak in 2000. The value of tantalum capacitors is nearing twice that of competing technologies.

AVX has indicated it intends to continue to purchase product under its supply agreement with Cabot, and both companies are in discussions and are hopeful that a resolution can be reached. Although all of the lawsuits between Cabot and its customers most likely will be resolved without significant direct damage to any participants, the indirect damage to the market and its tantalum capacitor buyers will linger for years.

Shawn Wood is a senior analyst for passive components with iSuppli Corp., El Segundo, Calif. Contact him at swood@isuppli.com