Electronics buyers can expect ample connector supply and lower connector prices by the end of the year as demand slows in North America. While connector prices increased in 2006 because of higher raw material costs, they are expected to drop about 2% by the end of the year, according to Ron Bishop, president of connector industry research firm Bishop and Associates in St. Charles, Ill. However, suppliers say prices for some products increased in 2007 and further price increases are possible if raw material prices go up.

"Copper prices continue to be a significant issue for the entire connector industry," says Mike O'Connell, director of product marketing at Molex in Lisle, Ill. "We've been able to pass some increases on with the potential for other increases later this year or early next year."

Connector price are stable to increasing, says Bavo Teunissen, global marketing communications director for FCI Electronics Division in Santa Ana, Calif. "There comes a point where suppliers can't absorb the price of gold, copper and other precious metals."

FCI has increased prices for certain connector products in 2007 by 1–4%. "Whether or not there are additional price hikes this year will depend on precious metal pricing for gold, copper, palladium and nickel," Teunissen adds.

O'Connell also says that freight is becoming a significant factor in its overall cost as product moves around globally. Freight costs are relatively the same whether it's for low-weight, low-average selling price (ASP) parts or high-ASP products but it becomes a higher percentage of the cost of those low-cost parts, which impacts where the product is manufactured, he explains.

However, connector suppliers will be hard pressed to raise prices because demand isn't as strong as in the past and availability is running high. "No connector companies complain about not being able to manufacture connectors because of overcapacity or lack of raw materials," says Bishop. Leadtimes aren't very long and OEMs are watching them closely. Seventy-five percent of orders are shipped in the same month. There is quick turnaround," says Bishop.

With demand slowing, the connector industry will grow only about 7.9% to $43.1 billion in 2007. In 2006, connector industry growth was nearly 13%.

Connector suppliers were euphoric about industry growth in 2007 and were disappointed by sales in the first half.

One segment that has done poorly in 2007 is mobile phones. In the second quarter, connector revenue in mobile phones dropped 30% from the previous quarter. The decline was due in part to increased shipments of entry-level phones which have lower connector content than high-end phones, says Bishop.

In addition, revenue in consumer and data sectors declined by about 6% compared to last year's June quarter. Bishop believes this is due to concerns regarding spending and inventory corrections at some customers.

Teunissen expects a stronger second half in 2007, but mergers such as Alcatel and Lucent and Siemens and Nokia Networks may be working against it. "Which products they go forward with has an impact on everyone in the industry, not only connector suppliers but hardware and software providers too," he says.

Slow growth in the North American market is "the biggest issue for the connector industry," says Bishop. He says revenue in North America "could be in negative territory in 2007. The third quarter looks troublesome and could be flat with the fourth quarter getting better if the economy improves," says Bishop.

He adds that the connector industry is watching the world economy closely and hoping the U.S. recovers in the second half of the year. "U.S. consumer spending has a big impact on electronics products particularly in areas that use a lot of connectors," Bishop says.

However, while demand growth will be slower in 2007 demand in China remains strong. In 1996, China consumed $172 million in connectors. By 2006, connector sales to China increased to $6 billion, according to Bishop. This is a 27.2% compound annual growth rate over the 10-year period. In comparison, North America grew 1% over the same period. Bishop says by 2010 or 2011 China will be the largest connector buyer in the world.

The military/aerospace sector will be a driver for growth, increasing at 10–12% in 2007. But the biggest markets for connectors remain automotive, computers, and data/communications/telecommunications including mobile phones. (See sidebar.)

One key sector for many suppliers is industrial. In Molex's 2007 fiscal year, which ended June 30, the company saw revenue increase 9% in the consumer market; 3% in telecom; 6% in datacom and 11% in automotive. Revenues for the industrial sector grew 16%. The industrial segment requires a lot of high-speed connectors, man-to-machine interfaces, and fast and accurate control units, says Teunissen.

To compete in the industrial sector and other segments, many top connector suppliers are beefing up their service capabilities. For instance, some suppliers will offer cable assembly services. Other services include shorter leadtimes, availability of product data, 3D models, datasheets, application notes, says Teunissen.

He says FCI is expanding its FCI Basics+ program which provides industry-standard connectors from stock at authorized distributors and a tech support hotline and micro site). FCI has also launched its Power Solutions micro site to make it easier for customers to find technical information and select components.