After wild ride, rate of growth begins to slow

By By Elena Epatko Murphy -- Purchasing, 2/22/2001

After skyrocketing in 2000, demand for connectors has dipped slightly. Long-term market expansion will continue to be strong, but buyers will see a recovery in the level of supply. As a result, prices will hold steady or nudge downward.

The second and third quarters of 2000 caused buyers some frustration as they waited often 20 weeks or more for certain connectors. However, leadtimes currently have begun to contract. "Capacity is starting to catch up with demand," says Bob Pokrzywa, director of segment marketing for the Americas at FCI Electronics, Etters, Pa. Suppliers agree that demand last year, especially for 2-mm connectors, was at a nearly all-time high.

Telecommunication and datacommunication drove the markets for connectors and will continue to be robust this year. Cellular phone use jumped last year, boosting connector demand for products and infrastructure.

Leadtimes stretched out 30 weeks for some connectors. Dan Boesing, marketing director, Samtec, New Albany, Ind., says the connectors industry is aiming for 4-8 week leadtimes, after customers waited 26 weeks for products in 2000. "Connector supply levels appear to be improving, but at this point most suppliers are still playing 'catch-up' because they were severely taxed in 2000," he says of suppliers' capabilities.

Boesing attributes easing leadtimes to increased capacity and fewer orders. "The last few weeks of 2000 and the first few of 2001 were slower," he notes. He credits "inventory adjustments after a frantic year, concerns that the economy is slowing down, and not wanting to have excess inventory" with gradually reducing connector leadtimes.

According to Boesing, Samtec's leadtimes are between 1-3 days for most board-to-board interconnects. Industry-wide, cable assemblies are out 10 weeks and leadtimes for high-speed product are 15-20 weeks, he says.

Purchasing's recent leadtime survey shows buyers receive connectors faster than they did a year ago. The average delivery is completed in 2.8 weeks, just slightly less than 12 months earlier. Fifty percent of buyers receive product in under a week.

Demand not only pushed out leadtimes for connectors last year, but strained producers' supply. Joe King, president of Molex, Lisle, Ill., notes ferrules supply is still low. To address that, Molex is adding capacity to produce ceramic ferrules for connectors needed in communication applications.

Adding capacity in anticipation of another burst of demand continues. FCI's Pokrzywa says strategic additions to capacity include investing in tools that have more capability. He says FCI has "increased capacity and we'll do so again in 2001." Even with new capacity coming online, he says the backlog from 2000 will continue through the first quarter.

John Voelmle, vice president, U.S. sales and marketing at Tyco Electronics, Harrisburg, Pa., agrees that supply continues to be tight. He says, regarding Tyco's markets in the U.S. and Mexico, there are certain part numbers on allocation, and supply varies by product line as well.

Demand stabilizes after 2000 sprint

Demand is strong, Tyco's Voelmle says, but it's not as high as six months ago. He and other industry sources say the rate of growth has slowed since third quarter 2000, though markets are still expanding. For instance, communications is still driving most growth for connectors. Demand levels will continue to increase this year, but without sudden spikes.

Bruce Grove, strategic marketing manager at 3M's Interconnect Solutions Division (ISD), Austin, Texas, says the fourth-quarter slowdown softened the rate of growth, though not by much. He says demand for connectors in communication markets is still strong, but somewhat less than the 30% growth rate ISD saw in 2000 in comparison to orders in 1999.

Grove says systems infrastructure accounted for much of the rise in demand in 2000. For instance, DSL and datacom are growing tremendously. FCI's Pokrzywa says wireless Internet access contributed to the "banner year" of 2000.

Telecommunications escalated last year, but more connectors still are dedicated to computers and peripherals, according to market research firm Bishop & Associates, St. Charles, Ill. That segment represents 25% of the market for connectors. Telecom makes up just under 20% of the connectors market.

High-speed products continue to be in demand. Bob Pokrzywa says the active market for 2-mm backpanel connectors will maintain momentum. One source says telecom demand, which contributes to high-speed connector orders, is just slightly off its peak after "exploding" in the late summer and early fall of last year.

Other areas of connector demand are expanding, but at a more moderate pace than in recent months. For instance, 3M ISD's Grove says process control and factory automation is more stable. Tyco's Voelmle says the appliance market is still healthy, with housing starts at a strong level. Voelmle also sees aerospace as an area of long-term growth.

Overall demand for connectors will grow 3.3% annually through 2003, to reach $7 billion, according to The Freedonia Group, Cleveland, Ohio. Fiber-optic connector demand will grow the fastest. Computer networking will drive orders for coaxial cable and printed circuit board connectors. Rack and panel and cylindrical connector orders are weaker.

Prices soften

Connector prices will soften further this year, now that demand has slowed and more capacity is available. Commodity prices will decrease slightly, while high-end product prices will stabilize.

Capacity counts for a lot in this industry. Pokrzywa says that not only were connector suppliers caught off-guard by the rapid jump in demand last year, but their sources, such as copper alloy providers, also had to scramble to meet orders.

Now that more capacity is available, prices will drop, says one industry source. This comes after 2000 emerged as one of the few years recently where "price erosion was not a significant factor," says Samtec's Boesing. Joe King at Molex agrees that there has been little price pressure from customers because of the concerns with availability. For 2001, Boesing says "limited supply of some materials could affect supply and price."

A recent PURCHASING survey reveals buyers are optimistic about a number of commodity connector tags through the first quarter of this year. D-sub, PCB mounted, 25-pin prices are down. DIP socket, open 16-pin prices are stable, as are tags for PLCC, 68-pos, and SIMM socket, 30-pos.

Boosting capability, cutting costs

Suppliers say they are increasing connectors' capability to support OEMs' (original equipment manufacturers) design requirements. Industry sources also are raising customer access to information in order to gain market share.

To support the trend toward miniaturization, producers are improving precision within their own processes, says Molex's King. Increasing smaller and more powerful connectors are boosting density and capability in end-use products. Pokrzywa at FCI Electronics says scalability continues to be critical as OEMs cut costs by buying a mix of high-speed connectors and less costly lower or medium connectors for backpanels.

Suppliers also are attentive to services as a method with which they can differentiate themselves from competitors. Dan Boesing says Samtec offers interactive design, testing data, and secured account-specific information online. FCI's Bob Pokrzywa says his company provides additional modeling and simulation to customers seeking information on product performance. Interconnect Solutions Division of 3M works with customers on long-term projects rather than one-time buys.

To address environmental concerns, industry sources say the use of lead-free solder is rising. This is driving demand for plastics with a higher melting point to match that of the newer solders.