Continued increases in costs for metals and resins are impacting the connector industry and will result in price hikes for some interconnect products.

"Raw materials cost is the biggest issue," says Mike O'Connell, director of product management for Molex in Lisle, Ill. While the biggest materials price increases impacting connectors in the past year continue to be copper and gold, plastic resins are quickly catching up, O'Connell points out.

Molex recently announced 4–10% price increases for some products, effective July 1. The connector maker is also looking at additional price increases as customers' contracts expire. The company is also, in some cases, implementing copper or gold adders with OEM customers so as prices increase there will be a price change directly associated with it.

Raw materials pricing has gone up significantly over the past few years and it doesn't look like it's going to end over the next 12–18 months, says Rob Poort, global business line director for commercial products at FCI Electronics in Etters, Pa. And those rising materials costs are putting pressure on connector suppliers' margins, says Poort. FCI has not passed along general price increases over the past 12–18 months, although the company expects some price increases for certain product lines this year. The hikes will primarily impact parts with a higher gold content and those that don't allow for the use of alternative technologies.

To offset some of the cost increases, some OEMs are looking at plating alternatives such as palladium and nickel with a gold flash. Though palladium is an expensive metal, connector suppliers say that pricing is much more stable than gold. Some connector suppliers are also finding cost reductions through the optimization of production processes, and by moving more manufacturing into low-cost labor countries such as China.

Shari Kolker, director of commodity management at EMS firm Celestica in Toronto expects to see price hikes of 5–40% for specialized connectors that have low demand and higher material cost content.

"Many of the smaller connector suppliers were hit harder based on their smaller scale and immediately passed these increases on to the buyers," says Kolker. "The larger suppliers were in most cases able to manage these spikes internally but have now exhausted that effort."

According to Kolker, standard commodity connectors are the least likely to be affected by commodity price increases because competition will keep prices in check. But unique connectors or highly customized products with a higher content of copper or gold are the most likely to see price increases.

Despite the rising materials costs, the connector supply base is still on track for growth.

The global connector industry is expected to grow 7.3%, reaching $45.9 billion in 2008, according to Bishop & Associates of St. Charles, Ill.

"The connector industry is growing year on year, but not at as brisk a pace as we'd like," says O'Connell. Molex expects to beat the industry growth rate with demand coming from high-end telecommunications and data systems, servers and networking for high-density, high-speed and high-power products.

Similarly, FCI's Poort reports healthy growth in the server and wireless base station markets with strong demand for high-speed board-to-board connectors, power connectors and standard backpanel products.

One notable trend in the connector industry is increased dual-source activity. Though it's nothing new in the industry, O'Connell believes it probably has been accelerated by the increase in materials costs to ensure dual suppliers to help combat raw material increases. For example, Molex and Amphenol TCS (ATCS) have signed a cross license/second-source licensing agreement that gives ATCS the right to manufacture and sell the I-Trac backplane connector system worldwide. In addition, Molex's recently developed high-speed, high-density Impact backplane connector system is now available from Tyco Electronics as a second source supplier.

Other recent examples include cross licensing agreements from FCI and Amphenol TCS on each other's high speed products including Amphenol's XCede backplane connector platform and Crossbow interconnect platforms as well as FCI's ZipLine connector system and its AirMax VS product family.

Security of supply is becoming more of a concern to buyers. To guarantee supply, even for new products, buyers want second sources, which is not always possible, says Poort. "Connector manufacturers are entertaining opportunities to cross license those technologies even in the early stages of product development," he says.

Another key trend in the industry is OEMs working with connector manufacturers early in the design phase to help lower the overall cost of their designs. "Customers are now looking past the cost of the connector and looking at the connector and applied cost," says O'Connell.

Molex is now offering services to help OEMs design printed circuit boards (PCBs). By helping OEMs apply their connectors more cost efficiently, supplier help drive costs down on their entire application, O'Connell says. For example, with high-speed products, Molex is working with OEMs to reduce layer count, which significantly reduces the cost of boards. Molex is working on the weight and size of the power traces, which results in less copper on the board and thus lower cost.

Purchasers are involved so they understand the total cost of the application, and they should be involved to help drive the overall cost of the applied system, O'Connell adds.

Poort agrees there has been an increased focus on higher levels of service. FCI Electronics has responded with its Basics+ service program that includes readily available stock on standard products. In addition, to make it easier for buyers to find product information, the company has recently launched a number of micro web sites including one for power and mezzanine connectors that also includes its MezzSelect product selector guide.