The relay market will post slow, steady growth over the next few years as unit demand rises, but prices fall.

Prices dropped 5-10% last year and similar price erosion is occurring this year. However, unit shipments are up and the global relay market will grow 2% from $4.1 billion in 2002 to nearly $4.7 billion in 2003. By 2005, the market will grow to $4.5 billion. However, it will still be short of the $4.7 billion in revenue that relay manufacturers posted in 2000.

"We aren't really talking about growth, we are talking about recovery," says John Gordon, an analyst with market researcher Venture Development Corp. "It is getting back to the way it used to be. It will be a painful few years of very low growth until something happens."

"Something" could be a new killer application for relays or a resurgence in demand for equipment that consumes relays.

"Someone has to build a better mousetrap and everyone has got to jump on board. I don't think that is going to happen," he says.

Gordon says solid-state relays (SSRs) will have the best growth rate over the next few years. While analysts have been predicting that solid-state relays will experience significant growth for years, it will likely happen now because the price difference between solid state and electromechanical relays has narrowed.

"The price chasm has closed," says Gordon. "Three years ago, people were saying when it gets to be 30% difference in price, people will consider it. Now it's 10% so there will be some jumping to solid state."

Solid-state relays' advantage is they last longer than electromechanical relays (EMRs) because there are no moving parts. In addition, they consume less power. However, the relay market will continue to be dominated by EMRs. About 89% of the market is EMRs. If SSR doubled their share in the next several years, EMRs will still be 78% of the market, according to Venture Development.

Gordon says the modest growth of the relay market will be driven by several segments including white goods, medical equipment, security, automotive and heating, ventilation and air conditioning (HVAC). Relay demand will be weak from the computer, military/aerospace and communications industries, according to Gordon.

Wireless and digital subscriber line (DSL) and test equipment for semiconductors are showing some growth in terms of relay demand, says Jay Buckley, marketing manager for relays for component manufacturer OMRON.

"HVAC and the appliance markets have remained strong. We expect that to continue," says Buckley. He have had 9% growth in those areas, but some of that is the taking of share."

The relay market tends to be segmented with relay manufacturers concentrating on specific customer segments. However, Teledyne Relays supplies both the military and commercial markets.

"In our case, military/aviation is about equal to our commercial business, which includes semiconductor test equipment, instrumentation and wireless base stations," says Sam Calvillo, director of sales and marketing for Teledyne. "The commercial segment is sluggish. In year 2000, we were 60% commercial and 30% military/aviation and 10% was space and industrial." Today, military/aviation and commercial are 45-45 and space and industrial are about 10%.

Cavillo says the military segment will be stable for the rest of the year and commercial will be down which means prices will fall.

"Suppliers get hungry for business and want to keep their facilities busy. That means downward price pressure," says Cavillo.

Buckley says that prices should fall about 5-10% for the year depending on the product. Prices fell about 10% last year. The continued price declines are "unbearable," says Buckley.