Speed, density to drive future connector growth
Gina Roos -- Purchasing, 9/16/2004 2:00:00 AM
The connector industry is poised for double-digit growth in 2004 driven by demand from virtually all electronics equipment sectors. Strong demand means buyers will likely experience extended deliveries for some products. In addition buyers may also see price hikes because of increases in raw material costs.
The global connector market is expected to grow to $33.4 billion in 2004 from $28.4 billion in 2003, according to Bishop & Associates, a connector industry researcher. Sales growth in the first half of 2004 was in the 26% vicinity, says Ron Bishop, president of Bishop & Associates. "We expect the second half to slow but expect connector sales in 2004 will grow 17.6%," he says. "Historically, the first half of the year results in 52%-54% of all connector sales for the year so the second half is always softer if it's a typical business cycle year."
The hottest market is mobile communications, including mobile phones and personal digital assistants (PDAs), says Darrell Wilk, vice president/director of sales for ITT Cannon. He notes that the telecom infrastructure market is starting to recover, while the industrial and automotive electronics markets are also doing well. Wilk says electronics content continues to grow in automotive applications particularly interior applications for entertainment and navigation systems as well as for transmission and engine control.
There is no question that many connector makers including FCI, ITT Cannon and Tyco are clearly focusing on the high-speed market to drive growth, particularly for communications applications, as demand picks up significantly for high speed, high density products.
"There is continual demand for higher speed products. We have equipment today running at 10 Gbit/s and we've got designers working at levels of 30-40 Gbit/s," says Pat DiPaola, regional marketing manager for FCI USA Inc.
There are increases in demand in the communications arena because of cell base stations and mobile handsets, says Andrew Jones, global marketing manager for ITT Cannon. This is driving requirements from 622 Mbit/s up to 2.5 Gbit/s and now up to 12.5 Gbit/s. The challenge is how to push the envelope for copper products and determine where fiber products intersect, he says.
Hand in hand with demands for higher speeds is the requirement for higher densities, especially for smaller, portable devices where there is pressure to shrink footprints and reduce pitch size and weight. Bandwidth and speed in broadband technologies for digital cable TV services, applications related to high-speed Internet access, high-definition TV, and storage services are driving growth.
While there is dramatically increased market demand for connectors this year globally, connector manufacturers say their key challenge is keeping up with demand and maintaining reasonable leadtimes. Despite the uptick in business in the first half, the industry is reluctant to add capacity because many suppliers got burned when the huge demand in 2000 was followed quickly by a severe downturn.
Wilk explains that most companies today want to minimize their inventories as much as possible to maximize cash flow and return for investors. After what happened several years ago, everyone is cautious about inventory levels.
There is some nervousness about the longevity of the market recovery and whether it will continue through 2005 or 2006, Jones says. "There is that dilemma because people have been scarred by the past, but we're working on those issues with our supply chain."
"It's a feast-famine-feast business cycle that has any manager a little bit skittish, and certainly concerned that we don't go through another downturn like in 2001 and 2002 where we had to close manufacturing plants, lay off people, and move production to China faster than we thought we had to," says Bishop.
The good news for suppliers is that purchasers are once again giving suppliers more visibility into their requirements. Connector manufacturers say buyers are more willing to place blanket orders or provide longer term forecast schedules which they can then use for schedule planning.
Plus, there is increased acceptance of using schedule sharing or vendor managed inventory programs to mitigate any issues of supply in the future, Jones says.
To guard against potential delivery woes, some connector manufacturers are relying more on their distribution partners to stock inventory to keep leadtimes in line. Larry Stegall, group leader for IO products at Tyco Electronics' Communications, Computers and Consumer Electronics Division, says his group is in a very good inventory position thanks to a well-stocked distribution channel. "A lot of our sales go through distribution and they aren't scared to stock inventory for us. Leadtimes are very good through them," he says. "We're paying attention to middle and smaller-sized distributors because that's where you can get your growth as well."
Overall, Tyco Electronics' sales through distribution are about 13% globally but the figure varies considerably by market segment and region.
Similarly, ITT Cannon expects the distribution channel to remain strong. Roughly 35% of its business flows through the distribution channel.
Still, purchasers will have to keep an eye on stretching deliveries and rising metals costs.
ITT Cannon's average connector leadtimes have stretched by a couple of weeks to 8-10 weeks this year, but the company says it will either maintain or decrease leadtimes in the second half of 2004 through increased production capacity or by bringing on more lean manufacturing programs for specific product lines to reduce production cycle time.
That's not all. Cannon is also taking steps in its own supply chain to ensure that leadtimes and pricing don't get out of control for certain precious metals such as palladium, copper, and phosphor bronze.
Although leadtimes for metals such as copper and phosphor bronze are under control, pricing for precious metals is still a factor, Stegall says. In July, Tyco's CCCE group announced price increases in the 3%-5% range for various product lines due to rising metals and plastic resins costs.
Stegall says purchasers might run into leadtime issues for specialty products such as for 78- or 128-position connectors versus industry standard 9- or 15-position commodity products. Overall, leadtimes for Tyco's IO products average 20 days or less.
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