CARLSBAD, Calif. --
As 2002 comes to a close amid forecasts for another year of depressed sales,
connector makers are fighting to stay afloat with measured actions that offer
longstanding customers more for their buck even as the suppliers tap into other
These actions have become even more essential for connector vendors. Weak
demand, severe price erosion, and the disruptive impact of production and
consumption shifts to low-cost China have cut deeply into sales.
companies like Tyco Electronics Corp. are integrating connectors with other
functions, for instance magnetics, to offer customers more product value.
Others, like ERNI Components Inc. and Radiall Inc., are avidly diversifying into
the aerospace/military or industrial automation sectors.
"People are looking at where they can refocus their business," said Wendy
Wuerth-Griggs, vice president of marketing and sales at ERNI Components,
Chester, Va., a subsidiary of Germany's ERNI Group.
Industry analysts initially projected that the market for connectors,
backplanes, and cable assemblies would rise slightly in 2002 from a dismal $34.9
billion in 2001. Now, a revised 2002 estimate calls for a decline of 13.8%, to
"We thought 2001 was the disaster of all disasters and expected 2002 to show a
bottoming and a modest upturn," said Ken Fleck, an analyst at Fleck Research,
Santa Ana, Calif., which this week hosted the annual Fleck Connection Congress
Conference participants said 2003 is also likely to be a tough year as OEMs and
EMS providers continue to consolidate their supplier base. Even industry leaders
like Tyco, a unit of Tyco International Ltd., Bermuda, feel increasingly
"Demand has become more unpredictable," said Minoru Okamato, vice president of
global communications for computer and consumer electronics at Tyco, Harrisburg,
Pa. "You have to be flexible."
Fleck Research expects connector revenue to grow at a 7% compound annual rate
over the next five years, reaching $42.2 billion in 2007 but still below the
industry's record $45.1 billion in 2000.
Only the military/aerospace market has shown some sales growth in 2002. Key
markets such as computer, telecom, consumer electronics, and datacom are
expected to post double-digit percentage declines, forcing connector suppliers
serving those sectors to diversify.
While ERNI Components has targeted many of its recent products, such as
high-speed backplane connectors, at telecom, the company is now looking at
industrial automation and other sectors, Wuerth-Griggs said.
Radiall has managed to shield itself to some extent by expanding into the
military market. The company derives half of its revenue from telecom, but
despite focusing on specialized RF coaxial connectors and cable assemblies
rather than commodity devices, the company's telecom revenue has slid 30% this
year as service providers cancel or delay infrastructure investments, according
to Dominique Pellizzari, vice president and general manager of wireless
communications and RF interconnects at the Paris-based company.
Ken Fleck noted that even without a possible sales boost for connector makers
from a Middle East war, there's been a ramp-up of fighter and surveillance
aircraft programs in the past year, with smart bombs slated to get more
attention in the near future.
Still, connector suppliers won't be able to avoid the pricing pressure that has
crushed margins the past two years, according to William Jensen, global director
of sales and marketing at Delphi Connection Systems, Irvine, Calif. Although
Delphi is diversifying into military and medical electronics, as much as 90% of
its revenue is generated from the price-sensitive automotive market. "Price
pressures are constant," Jensen said.
Fleck Research estimates that global average selling prices have eroded 8.2%
this year, and have fallen an average of 16% in China. The research firm expects
connector prices in 2003 to fall a more normal 3.5% globally and 10.3% in China.
Meanwhile, the scramble of OEMs and EMS companies to relocate production
facilities to China continues at a frenzied pace, further hurting North American
connector manufacturers. Sales of about $1.4 billion have shifted from other
countries to China this year alone, according to Fleck Research.
Another challenge facing connector vendors is how to meet the build-to-order,
short-cycle requirements that OEMs like Dell, Cisco, and Sun are imposing as
they shift to a demand-driven rather than supply-driven strategy, said Jerry
Labowitz, an analyst at Merrill Lynch & Co. Inc., New York.
At Cisco Systems Inc., a virtual manufacturing operation that requires its EMS
and supply partners to pull inventory only as needed has been instituted, said
Bill Bender, strategic commodity manager for global supply management at the San
Jose company. This strategy favors suppliers with global manufacturing and
warehousing services, a wide product line, and low pricing, Bender said.