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Getting connected
Once upon a time, the toughest challenge connector suppliers faced was the rapid commoditization of their products as Asian manufacturers leveraged lower costs to drive down prices and severely crimp margins.
Then OEMs and EMS providers moved plants to Asia; prices for energy, gold and copper skyrocketed; and the European Union, among others, legislated to keep pollutants out of the waste stream. Effective supply chain management became even more critical to retaining a customer.
How have the leading connector makers responded? With a raft of updated supply chain services, hedging tools, plant relocation and diversification into new markets. No. 1 global connector supplier Tyco Electronics Inc., for instance, has focused on making its offerings more easily accessible to the engineering community, according to Dennis Conway, vice president of industrial/commercial sales and marketing for the Americas.
"I think that it is paying some dividends," Conway said.
Despite their efforts, however, connector makers are still struggling to match their record sales of 2000, analysts report. Kenneth Fleck at Fleck Research (Santa Ana, Calif.) said the connector industry has "turned the corner" but will need "several years" to reach its peak again. Worldwide connector, cable assembly and backplane shipments in 2005 rose to nearly $37 billion from $34.7 billion in 2004, he said.
"The year 2000 was the highest market size in the history of the connector industry," he said. Worldwide sales hit $43.9 billion that year but crashed to $32.2 billion in 2001. Sales fell further in 2002 and flattened in 2003 before starting a slow recovery in 2004. Total shipments last year "did not match 2000," said Fleck.
Who's who?
A distant second on Fleck's Top 10 was Molex, which had sales of $2.2 billion last year, up from $1.2 billion in 2004. Amphenol climbed to the third position, from fifth, last year after buying Teradyne's Connection Systems Division and several smaller companies. Amphenol, at $1.6 billion, eclipsed FCI ($1.44 billion) and Hon Hai ($1.41 billion) to round out the top five.
Next in order were Delphi Connection Systems, JST Mfg., Hirose, JAE and newcomer Deutsch (Hemet, Calif.). Deutsch moved into the elite group for the first time in 2005 with $577 million in sales, mostly to the military/aerospace and industrial sectors. The Top 10 collectively posted sales of $18.8 billion, half the industry's total.
China is key
Brian Krause, director of marketing for the Americas at Molex, said the key is being close to your customer geographically. "We don't want products to have passports, so to speak," Krause said. "We want the manufacturing source to be invisible to our customers."
Krause said the Lisle, Ill., company has tried to minimize the effects of petroleum prices escalating above $70 a barrel, gold eclipsing $600 a troy ounce and silver and copper costs having skyrocketed since early 2004. With microdot plating, for example, Molex applies gold only to specific contact areas, decreasing use of the precious metal by about 50 percent, he said.
The company also reviews internal processes like material handling to maximize production efficiencies based on Lean technology principles. Another Lean project focused on Molex's Internet activities.
Sam Cremin, marketing communications director for Molex's Americas region, said the company developed an online catalog of sales drawings and product information, including three-dimensional models that customer engineers can plug directly into their CAD files.
"We have more work to do," Cremin said. "But customer and distributor feedback is generally very positive. The number of downloaded drawings is increasing. Customers are doing more self-service."
Molex is in good company. A spokesman for Tyco Electronics said his company combined several Web sites into one, offering 240,000-plus products in the online catalog, with drawings, documentation and CAD models available for download.
Secure e-commerce Web site applications allow visibility into pricing and availability of all products, order status and shipment tracking. Web site traffic analysis tools tell Tyco how visitors are using the site, he said.
"We improved the search engine to provide text and part-number search capabilities across our 30 sites," he said. "We improved our parametric search selection with more product information visible earlier in the search process [and] improved the graphic representation of products to ease identification of possible design solutions."
New markets and lead-free
Conway noted that Tyco has "expertise in stamping and forming metal and molding plastic and plating metal. That allows us to offer a customer a unique solution that he can't get from somebody else."
As the July 1 deadline approaches for meeting the Restriction of Hazardous Substances (RoHS) directives in Europe, a major challenge for Tyco and other suppliers is developing a balanced inventory of lead-free and noncompliant connector products.
Having noncompliant product with "no potential in the market" along with an "appropriate amount of compliant product that will be needed within lead times expected by customers is "certainly a balancing act," Conway said.
Some customers, especially in the appliance industry, he said, are not worried about RoHS, because they have little business in Europe.
"The aerospace industry is exempt, and the medical industry has an extension," he said. "So the impact is different depending on the industry and the customer within that industry."
Randy Ash, Delphi Connections' chief engineer, said the lead-free initiative is affecting his company in a "positive way" as it deals with transportation industry applications, its primary market.
"We've done other things outside of connection systems, such as lead-free cables," he said. "We've got more and more of a need for compliant pins and headers than we've seen in the past."
"The product itself isn't lead-free," said Steve Ramdin, product manager for development. "It's the application and how it's applied to the circuit board that allows you to be lead-free."
Joel Heberlig, national sales manager for JST Sales America Inc., said the jury will be out for a while regarding the success of RoHS compliance efforts in some products, such as entertainment systems that may be deployed in dark, damp basement laundry rooms as well as in dry, sunny, air-conditioned rec rooms.
"We've got to make sure that the product you're providing is going to live in those kinds of environments," he said. "We've done a lot of testing. We've done a lot of studies. But until a product is out there a year, two years, three years, it's going to be a little bit of a crapshoot."
Bill White can be reached at billwbiz@yahoo.com.
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