The connector market is well on its way to a recovery as it slowly shifts from a buyer's to a seller's market. Leadtimes for some connectors are stretching and prices are stabilizing due to growth in demand from automotive, consumer electronics, mobile communications and computer industries among others.

"Order activity is up, leadtimes are extending, price erosion is mitigating if not turning around," says Brian McGowan, connector product marketing manager for Teradyne Connection Systems. "We're seeing new activity from customers in all segments, new programs rather than extensions of existing platforms and new technology needs."

Rising demand means the connector industry will grow 13% in 2004 to $32.1 billion, according to market researcher Bishop and Associates.

With demand increasing, buyers can expect longer leadtimes and price stabilization for the rest of the year. In general, connector leadtimes have extended to six to eight weeks from about four to six weeks. However, it's unlikely that there will be any widespread shortages in the connector industry this year.

During the past three years buyers got used to connectors being shipped the same month they placed the order. That's changing now as connector demand builds. Connector manufacturers now say that buyers need to place their orders with more leadtime and provide more forecast visibility. If buyers want shorter leadtimes, connector makers may charge a premium, according to Ron Bishop, president of Bishop and Associates.

Connector makers and analysts agree that pricing has stabilized and some small increases may occur later in the year. Rising costs for precious metals will result in some modest price hikes for some types of connectors, says Bishop. Metal prices are rising as demand increases and supply tightens. Some leadtime stretching is occurring for steel- and copper-based materials such as phosphor bronze.

If connector tags rise, it will be the first time in three years. "In 2001 and 2002, there was very aggressive erosion in the industry and in the second half of 2003 we started to see that erosion mitigate fairly significantly," McGowan says. "We still experienced price erosion but it wasn't at the levels we've seen in the prior two years. We see erosion in certain segments of the business and in other cases we've been able to hold prices. At this stage, we haven't had a wholesale increase in price across the board," he says.

The general consensus among connector manufacturers is that both order and design activities are up and backlogs are growing because of broad-based demand. Teradyne Connection Systems, for example, reports strong design activity for all of its high speed, high-density connectors for new platforms that call for greater bandwidth.

McGowan doesn't anticipate any shortage issues for high speed, high-density Level III connectors this year although leadtimes have extended by a couple of weeks to about four to six weeks.

Backlog is much healthier than it has been and as demand has increased, capacity utilization has become a greater factor than a year or two ago, McGowan says. "Leadtimes have extended in the supply chain and in our commitments to our customers."

Bishop reports a positive book-to-bill ratio of 1:1 over the past six or seven months, which means the industry is starting to build a backlog. He believes the connector industry is getting very close to capacity.

While the overall connector industry will grow 13% in 2004, the connector market in China will rise 28.6% because so much electronics equipment manufacturing has moved there.

Connector companies are expanding their manufacturing footprint in China to support their key customers. Bishop says China accounts for about 10% of the global connector demand and that percentage will likely double by 2007.

"The biggest single issue facing the electronics industry is offshore manufacturing moving to China. The global connector industry grew 12% last year, but the U.S. connector market was negative 1%, while China grew 20%," says Bishop.

Samtec has expanded its manufacturing operations in China and Malaysia and has increased its sales force in Asia by about 30% over the past year, says Danny Boesing, marketing director. He says the expansions were necessary to continue to do business with some of its larger customers that demand local sourcing and support. Teradyne has opened a new Shanghai manufacturing facility to support both Chinese and global demand.

Much of the manufacturing in China involves consumer electronics products including digital television with new display technologies, DVD players, MP3 players and digital cameras which will drive connector demand.

Computers, mass storage products and new IT investment will also drive the connector industry this year. Connector demand from the telecommunications equipment manufacturers is also rebounding as third generation cell phones and infrastructure roll out. "Although we don't expect real volumes until 2005 for new products and new designs, it will set the stage for future growth," says McGowan. Teradyne expects to grow as fast as the market if not faster and to continue to gain share in the high speed, high-density connector market.

Based on overall activity levels and design wins, Samtec expects sales growth in the mid-30% range in 2004 which may be conservative, Boesing says. The company's shipments were up 37% from January to March, 2004.