The buyers' market for connectors that started last year continues as leadtimes for standard connector products are ranging about two to five weeks, while price erosion increases slightly above the industry norm of 2-5% per year.

However, the bad news for purchasers is that the good buying times may be coming to an end. Connector manufacturers are seeing healthy demand from the automotive, consumer electronics, industrial equipment and military/aerospace sectors. While the telecommunications industry remains flat, it appears the computer industry is starting to recover.

"The connector industry has hit bottom and has been bouncing along the bottom since October 2001. For the past 10 months, business has not been getting any worse," says Ron Bishop, president and industry analyst for Bishop & Associates Inc., St. Charles, Ill. In fact in recent months connector demand seems to be increasing. Connector orders in June were up 13.1% over the same period in 2001. It was also the third consecutive month in which orders were above the same period as last year. Another encouraging sign that the industry has reached the bottom of the cycle is that June 2002 orders were 11.5% higher than May 2002.

If orders and shipments do modestly better in the second half of 2002, the connector industry will decline about 2-3% or experience flat growth, Bishop says. If demand doesn't pick up in the second half, the industry will have its second worst year in history.

However, the second half is usually stronger in terms of demand than the first half and most connector manufacturers have seen increased shipments and bookings since January.

Molex Inc., Lisle, Ill, has seen stronger bookings and positive book-to-bill ratios for standard products and the number of days of inventory at the OEM and distributor levels are decreasing although the actual dollar value is still a little high, says Martin Slark, president and chief operating officer for Molex. In addition, some electronics manufacturing services companies are still working off inventory, says Slark.

"Although we've seen a pick-up in demand, many companies still have excess inventories and the slope of recovery, assuming it continues, will be gradual," Slark says.

Another trend that has emerged is buyers are placing orders closer to the time they use them in production. OEMs don't want to carry a lot of inventory and many of them don't have a lot of visibility into future orders so they are giving all their suppliers smaller and shorter leadtime orders, Bishop says.

Molex notes that during June, 70% of what was shipped was ordered in the same month. "We're seeing much shorter leadtimes and requirements for faster response times. Companies coming out of this slowdown are very cautious about what inventory they put into place," Slark says.

While business has been sluggish, connector companies say they haven't cut back on research and development. Most of the cost-cutting measures have been in the areas of head count, consolidation of facilities and cut backs in capacity utilization.

"We believe new products is the lifeblood of the future and we continue to do that but we cut back on nonproduct capital expenditure," says Slark. "We weren't adding buildings or generic capacity but we continue to invest in new products and new product technology."

A few companies have implemented slight changes in new product development focus to better weather the downturn. For example, one change in Samtec's strategy during the downturn was to become more aggressive in new product development for automotive, industrial and medical markets that are more insulated from extreme increases and decreases in demand, says Danny Boesing, marketing director for Samtec Inc., New Albany, Ind.

While Samtec continues to focus on signal integrity applications with high-speed, high-density connectors for the computing and telecom industries, the company has developed a new Micro Rugged connector line for automotive and military applications.

At the same time, Samtec hasn't abandoned new product development for telecom customers. The company plans to launch at least two new products, which include a high-density connector with 1200 I/Os and high-speed products that can handle signal speeds of 10 GHz and above.

Another trend in the industry is growing use of electronic data interchange (EDI) and use of the Web. Molex's Slark reports that about 70-80% of the company's bookings come in via EDI and its Web site gets about 500,000 separate customer hits per month. Molex customers are also downloading a lot of data per month, about 50,000 drawings and 10,000 3D models.

Tyco Electronics continues to roll out Web-based transaction capabilities globally to its customers, distributors and manufacturers' representatives, the number of transactions (queries) has risen from 10,000 transactions to about 25,000 transactions per day, says Jim Ritz, director of e-business for Tyco Electronics. Tyco has rolled out order inquiry, pricing and product availability applications on a Web-browser type interface in 33 countries.

As a proponent of RosettaNet, the high-tech industry's e-business standards consortium, and member of the RosettaNet Electronic Components Board since 1999, Tyco does about 30,000 transactions per month via RosettaNet partner interface processes (PIPs) with eight customers.

Ritz believes that RosettaNet implementations will continue to grow due to economic conditions as companies continue to cut back on customer service and in a number of other areas. Systems interface is even more important today, Ritz says.

Another key trend is the movement of connector manufacturers to China as more of their OEMs and EMS customers shift manufacturing into the low-cost labor region. To survive, a connector company must have a global presence and the ability to manufacture and supply product in low-cost labor countries, Slark says. But the company must also continue to support design and development efforts being done in developed countries as well as meet demand for high-end products in those same countries, he says.

A few smaller connector companies operating in low-cost countries produce a very narrow range of products and typically they're providing low-cost versions of industry standard products where there is no intellectual property protection and where you can't differentiate on anything other than price, Slark says.

However, Slark says connector manufacturers can't abandon low-end products because customers want a full range of product.

As a result, connector makers have to manufacture product in those low-cost labor countries and at the same time have to continue to innovate and introduce newer products and try to stay ahead of the technology curve, he says.

While connector manufacturers must have a global reach they must also continue to develop the product their customers need. That means they have to keep up with increasing computer processor speeds and higher data rates.

Denser, higher performing and better electrical characteristics are the key trends for processor and memory sockets, says Bob Atkinson, product development manager for the Communications, Computer and Electronics Business Unit of Tyco Electronics, Harrisburg, Pa.

Other system interconnects also have to support much higher data rates and lower crosstalk, Atkinson says. Electrical performance issues such as signal integrity and crosstalk become more critical. Connector companies need to be more aware of how their interconnects interact with the rest of the system, he says. It's important to have electrical and mechanical design teams working together to ensure connectors meet the electrical and mechanical requirements of an industry standard or specific customer requirements, says Atkinson.