Growth, lower tags forecast for connectors
By James Carbone -- Purchasing, 4/23/1998
Despite the Asian financial crisis, the connector industry will see solid growth, as demand for interconnects from the computer and communications industry rises. The good news is that prices will continue to fall and savvy buyers may be able to find bargains sourcing connectors in Asia.The worldwide connector market will grow 6.5% to nearly $25 billion in 1998 and will crack $32 billion in the year 2002. The North American market will grow 8% to $9.6 billion, according to connector industry researcher Ron Bishop.
While connector demand increases each year, prices decline. Last year prices fell about 4% on average. "Prices are going down every year because there is a lot of standardization and a lot of competition out there," says Bishop. "The growth rates have been very good in the last few years. When you have a lot of volume, you can afford price erosion and still make money." He adds that in the last several years there has been little inflation on materials used in the manufacture of connectors.
Connector companies also have increased productivity by investing in sophisticated information systems. "Inventory management is outstanding," says Bishop. "The industry has increased its turns of inventory and decreased its raw-material storage. OEMs can get quick turnaround on delivery and they don't have to carry 10,000 connectors. They carry a day's supply," he says.
While prices have declined, connector companies apparently have risen to the challenge because many enjoyed double-digit sales growth in 1997. Molex increased sales almost 14%; Methode, 14.1%; Amphenol, 14%; Berg, 11.4%; and Thomas and Betts, 6.5%. AMP, the largest connector company, increased sales 5.1%.
In 1998, buyers may have a unique opportunity because of the Asian financial crisis, which has resulted in the devaluation of many Asian currencies. Devaluation means that connector makers should have lower manufacturing costs and can further lower prices.
"If you are a purchasing manager responsible for connectors it gives you the chance to look at product in Asia where you could take advantage of the currency devaluation," says Martin Slark, president of U.S. operations for connector-maker Molex.
Computers and peripherals have the biggest appetite for connectors, accounting for 25% of all connector sales. Communications equipment is second with 19.4% of the market, and that percentage is likely to grow.
"The PC market continues to grow, but rate of growth is slower," says Slark. "We saw dramatic growth two or three years ago, but you're going to see a certain amount of saturation."
He says desktop models at the low end are using fewer connectors. "But offsetting that is an increasing number of notebooks that have a higher pin count, so you have greater functionality and a higher number of interconnections." He notes that as processors become more powerful, there is a need for connectors with higher densities, higher pin counts, and higher speeds.
One example of how microprocessor technology is affecting interconnects is the Pentium II, which is causing a demand surge for edge-card connectors. The Pentium II is housed in a video-game-like cartridge and uses an edge-card connector instead of a socket 7 multiple pin PGA that Pentium and Pentium Pro processors use. The connector is assembled on the motherboard with retention channels for the Pentium II cartridge. The connector uses 242 bi-level contracts on a 1mm putch.
Because of the Pentium II, the worldwide market for edge-card connectors is forecast to grow from $75.9 million in 1997 to $176.1 million in 1998 and $313.7 million by the year 2002, according to market researcher Bishop and Associates.
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