Switch market poised for recovery as prices stabilize
Staff -- Purchasing, 3/18/2004 2:00:00 AM
Severe price erosion in the switch market may soon be over as pockets of demand continue to increase from several market sectors, including commercial, medical and security. This recovery in the switch market may also lead to availability issues later in the year.
Venture Development Corp.'s most recent forecast has global switch market growth pegged at $3.5 billion in 2004, up from $3.3 billion in 2002. However, several switchmakers forecast greater growth this year. "We've seen some nice recovery in the switch market," says Ann Fagan, product manager for switches at Tyco Electronics. She has seen business pick up for slide, tactile, pushbutton and toggle switches.
Fagan also notes that the distribution business is improving. About 85% of Tyco's switch business goes through the distribution channel.
"I see much more stable signs of a recovery," agrees Kiyoko Toyama, president at NKK Switches (Scottsdale, Ariz.). "Customers that haven't made purchases for the last 12 to 18 months or so are starting to buy. They have used up their inventories and are feeling comfortable enough to resume placing orders," she says.
"We also see some new designs and orders from the medical industry in such areas as diagnostic devices and medical equipment, mostly for lighted and sealed panel switches," Toyama says. She reports new business from security-related products, which need a variety of switches, including slides, toggles and keylocks.
Steve Hugener, marketing manager for Cherry Corp. reports a similar recovery. "We've seen a broad recovery in nearly all segments of the commercial/consumer OEM sector, beginning around September 2003 and continuing through today."
Due to increased demand, buyers should keep a close watch on leadtimes. Hugener says leadtimes have extended a bit from one year ago for snap-action switches, as demand is stronger than it was in first quarter 2003.
"We see heavier expedites then we've seen in a long time and that tells me that leadtimes are going out a bit," Fagan says. Her advice: "The more purchasers give us visibility, the better we are able to plan for any uptick in capacity." Everyone is so focused on managing their assets and keeping their inventories down that they are hesitant to commit far out," she says.
Price erosion may also come to an end in 2004. "Price erosion has already tapered off in the first quarter," says Fagan. "You'll start to see some price increases based on availability as factories get busier."
Still, a big issue for switch manufacturers is greater competition from offshore. "Everybody is hungry for business; there are more offshore competitors and there are more customers moving their manufacturing offshore," says Fagan.
Tyco has gained some business back from low-cost offshore competitors by offering customers more inventory programs. These include keeping stock for them in the U.S. or at their local manufacturing sites. "Plus, we have sales people that call on them on a regular basis and support their needs quickly," she says.
Similarly, Cherry Corp. has been able to compete with low-cost Asian suppliers on price, but focuses more on service. "We've seen a number of switch customers attracted by the allure of low-priced switches from China but disappointed by the service or quality systems in place by low-price bidders. We find that having multiple assembly locations is the best way to deliver service to far-flung customers.
"Many of our significant customers are manufacturing in Mexico, so if they purchase their switches exclusively from China, they expose themselves to significant logistics and duty costs, plus a degree of political risk, since they have little influence over the future trade relations between China and Mexico, or China and the U.S.," Hugener adds.
Fueling growth
Targeting niche markets and forging ahead with new product development programs is helping bolster revenue at several switchmakers.
For example, Tyco Electronics expects 8% sales growth for switches in North America because of both the market recovery and new products. "We introduced new rocker switches and micro switches last year so we're expecting to see some continued growth from those products," says Fagan.
Tyco has also expanded its sealed tact switch line to include those with extended life ratings and soft actuators for customers in the medical industry and for those who use switches in a solder wash environment. The company is also expanding its custom product programs, which will mean more growth, Fagan says.
U.S. switch suppliers are also attempting to deal with extremely low price competition from China by focusing on niche markets.
Tyco's switch business is looking to expand its industrial control line, where functionality and lower cost, not size, are key requirements. The company may also introduce smaller micro switches for applications that call for miniaturization.
On the other hand, NKK Switches sees a greater need for standard-sized power switches that feature extended temperature ranges and panel seals for medical, industrial and food equipment markets. The company has also made a concerted effort to focus on higher-end switches for markets such as medical equipment.
"In some of the commodity switch markets we will have some low-cost versions where we want to participate, but our focus will be on higher average selling price, unique products where there is less competition," Toyama says.
NKK continues to focus much of its new product development in the lighted switch market and is currently looking at new LED technology. The company also expects that all of its switch lines will be lead-free by first quarter 2004.
Cherry's Hugener believes that the most important innovations in the switch market are those that enable manufacturers to produce lower cost switches without sacrificing performance. "So we focus on material and process innovations that can either bring cost benefits to customers or bring performance improvements without cost impact," he says. "For example, in waterproof switches, we've developed new processes for low-pressure polyamide injection molding to replace traditional potting processes."
China's supply chain value
09/28/200910 Tips for Business Travel in China
11/03/2008Shorter leadtimes, lower prices for switches
03/22/2000
Now Playing: 