China's multilayer ceramic capacitor (MLCC) manufacturers are positioning to capture lower-end market share as Japanese and South Korean industry leaders pivot aggressively toward high-value components for AI servers — a structural shift that Goldman Sachs has called 'the largest and longest cycle in history' for the sector.

Why it matters

MLCCs — nicknamed the 'rice of the electronics industry' for their near-universal presence in electronics — are tiny passive components that regulate and stabilise electrical currents across devices from smartphones and electric vehicles to AI servers and data centres. Their criticality to modern hardware makes supply-chain dynamics in this segment a bellwether for the broader electronics industry.

As AI infrastructure buildout accelerates globally, the demand profile for MLCCs is bifurcating sharply: premium, high-reliability components are being snapped up by hyperscalers and server OEMs, while the commodity end of the market faces a relative vacuum that Chinese manufacturers are now moving to fill.

The AI server demand surge

Kazunori Ito, Director of Equity Research at Morningstar, attributed the surge to compounding technical pressures inside modern AI infrastructure. 'The sharp increase in power consumption in AI servers, alongside rising chip complexity, is driving demand for MLCCs that combine miniaturisation, high capacitance, thermal resistance and long-term reliability,' he said.

Ito added that pricing dynamics are unusually favourable for established suppliers: 'The price erosion that typically accompanies intensifying competition is likely to be considerably more muted than in a normal year. Indeed, high-end MLCC suppliers have announced a succession of price increases from 2026 onward, and we expect this trend to persist for some time.'

Market backdrop

According to a recent note by Citrini Research, the global market for server MLCCs was valued at approximately US$1.3 billion in 2025, against a total global MLCC market of roughly US$15 billion. Demand in the server segment is expanding rapidly, with AI server MLCCs projected to grow by approximately 80 per cent.

That growth trajectory is concentrating capacity investment at the top tier — capacity expansions and successive price increases by leading Japanese and Korean producers are signalling where their strategic priorities lie, effectively ceding the commodity segment to lower-cost rivals.

The competitive backdrop

Chinese MLCC firms, based largely in Shenzhen and broader Guangdong province, have historically trailed their Japanese counterparts — particularly Murata Manufacturing and TDK — and Korean rivals in advanced miniaturisation and reliability ratings required for mission-critical server applications. That technology gap remains, but the strategic realignment at the top of the market is creating a window that did not previously exist at this scale.

Industry analysts note that Chinese producers gaining volume and revenue in mid-to-lower-end segments could fund the R&D investment needed to eventually close the gap in higher-specification tiers — a pattern seen previously in displays, batteries, and solar panels.

What's next

The trajectory of AI server deployments through 2026 and beyond will determine how durable this opportunity is for Chinese MLCC makers. If leading Japanese and Korean producers sustain their upmarket focus — and current order books suggest they will — the window for Chinese competitors to consolidate a larger share of the mid-tier market could widen materially over the next two to three years.