Switch tags to rise slightly

Gina Roos -- Purchasing, 3/16/2006

Buyers can expect switch prices to increase 1-3% through the rest of the year because of rising materials costs for oil, copper and precious metals.

Average selling prices are rising 1-1.5% for certain product categories within specific markets because of rising materials and research and development costs for innovative products, says Lance Sobelman, senior analyst, electronic components and advanced materials, for market research firm Venture Development Corp. (VDC) in Natick, Mass.

Switch manufacturers are feeling squeezed, says Peter Brouillette, general manager for North America Region at Apem Components in Haverhill, Mass. "On one hand there's tough competition and on the other hand there are rising materials costs for copper, precious metals and plastics due to the price of oil. I think buyers will see prices increase about 2-3% in 2006," he says.

Another factor that often gets overlooked is delivery costs. Some delivery services are charging surcharges for fuel to ship product, Brouillette adds.

While prices may increase in the short-term, it remains to be seen if price increases will stick. If market growth is any indication, prices likely will decline again. The global switch market is expected to grow modestly from $3.8 billion in 2005 to $4.2 billion in 2008, says VDC.

While prices are always an issue, they aren't the only one buyers face in 2006.

One of the biggest issues is the European Union's Restriction of Hazardous Substances (RoHS) directive that bans six substances including lead. RoHS has manufacturers scrambling to ensure that they have converted their product lines to meet the July 1 deadline. The good news is most companies say they have made the switch to RoHS-compliant products or will make the change by the deadline. (See story, p. 20)

The switch market is also going through a transformation as a result of Chinese competition. China's impact is its ability to manufacture at a lower cost and as a result many U.S.-based small to mid-size firms are using China's manufacturing capabilities, Sobelman says.

The outsourcing of manufacturing to China helps decrease costs and is helping U.S. firms break into Asian markets. However, Brouillette says some switch manufacturers that have recently relocated to Asia have run into service and delivery problems.

Despite those problems, some switch manufacturers are expecting strong growth over the next several years although industry average growth will be in the 3-5% range. For instance, Apem expects double-digit growth while NKK anticipates 15-18% sales growth in 2006.

NKK has refocused its attention on high-reliability markets such as the industrial sector and in particular the broadcast market with a focused product line.

In addition, NKK is realizing some growth as a result of moving production of miniature and subminiature toggle and push-button lines for industrial products to China. "Because of cost reductions, we're able to participate in some of the competitive bids that we had to walk away from in the past," says Kiyoko Toyama, president of NKK Switches, in Scottsdale, Ariz.

Switch companies that provide customized switches will also do well. More and more companies are demanding customization for electromechanical switch products, says Sobelman. He also believes there is a void in this marketplace when it comes to customizing switches, and this is where some of the smaller players or new entrants can make some inroads.

A lot of growth has come from custom opportunities where a product is designed to solve a particular problem for a customer, says David Webber, worldwide product line manager at ITT Electronic Components in Newton, Mass. Customers ask for help not just with a switch solution, but with packaging or assembly issues, which are typically integrated packages or modules rather than just the individual switch. He says roughly 30% of ITT's sales are from custom orders.

Similarly, about 30% of Apem's revenues come from either modified or custom devices. These modifications can be as simple as adding a longer actuator or wire to a standard switch or as complex as mixing membrane panel or panel-mounted conventional switches together in a custom design.

NKK also offers custom choices with its switch products. One of NKK's focus products is its programmable line. The IS series SmartSwitch with RGB LEDs (along with the KP01 series) allows designers to customize control panels with specific colors. Plus, it offers low power use and low heat.

Sobelman says low-current devices are becoming more popular as OEMs continue to shrink the size of their end products, which must be able to operate off of lower currents.