Last year, electronics buyers had to deal with long lead times, allocations and increasing prices for many components. The good news is that lead times should ease in 2011 as many suppliers have increased production. The bad news is that prices are likely to increase because of higher raw material costs.

Higher prices and increased demand resulted in strong growth for connectors, switches and other components in 2010. Growth will continue in 2011, but at a slower rate, according to suppliers and analysts.

Ron Bishop, president of connector research firm Bishop and Associates, said the connector market grew 32 percent to $45 billion in 2011.

"The connector industry had its best year ever [in 2010]," Bishop said. "We had solid growth through the year."

There were two reasons for that growth, one reason being that inventory levels in the supply chain were low because of the industry downturn in 2009. OEMs, distributors and contract manufacturers cut inventory of components when orders for end equipment plummeted in 2009.

The global connector industry will grow to $48 billion in 2011 because of healthy demand from many business segments.

"For a while, the pipeline was empty," said Bishop.

When equipment demand picked up in 2010, component orders increased rapidly, resulting in longer lead times, not just for connectors, but for switches, relays and passive components.

However, 2011 will be different. Demand will be less in 2011 as inventories have been restocked. Component demand will reflect end equipment demand. As a result, there should be single-digit growth for many components in 2011. Bishop forecasts that connector industry revenue will grow 6.1 percent.

"It won't be a bad year. It is still higher than the historical average for the industry, which is 5.6 percent annual growth," Bishop said.

Industrial was the strongest segment in 2010 for connector manufacturers and will be robust again in 2011. Automotive, military/aerospace, computers, communications and consumer will also be healthy in 2011.

Lead times will improve

Despite decent demand, lead times for connectors and other components will ease back this year as suppliers continue to bring back production capacity.

Many component manufacturers started to bring back capacity last year, but did so slowly.

"Before you bring back capacity, you wait until you get a backlog and then you slowly rehire," said Bishop. "Then you have to take care of the best customers and most profitable products first."

Many component manufacturers are still taking a cautious approach.

"We are watching closely what the market situation is," said Bill Chandler, marketing manager for the Americas for Omron for relays, switches and connectors. "We are all conservative in terms of making that financial commitment for capacity for what may or may not be long-term demand."

Some manufacturers have brought back some capacity but are not operating at 100 percent and are taking a wait-and-see approach.

"We have added capacity at our factories in Costa Rica and China," said Gary Mountford, general manager of C&K Components, based in Newton, Mass. "We are not running three shifts anywhere. However, given enough visibility, we can add capacity and people."

As a result of the cautious approach by suppliers, lead times for many products stretched last year and continued to be longer than normal in January. However, lead times for many parts will shrink later in the year as more production capacity is brought back.

Bishop said lead times for many components are about seven weeks but will probably drop to four to five weeks later in the year.

Prices to rise

Bishop said while connector supply will improve, prices are another story.

"I don't see how prices can't go up," said Bishop. "They are going up because prices of gold, copper and other materials are rising."

When raw material prices increase, component manufacturers first increase prices for distributors.

"In the connector world, that is about 22 percent of world demand," said Bishop. "Last year prices increased three to five percent for distributors."

The distributors try to pass those prices on to customers.

"My guess is they are successful about 80 percent of the time," said Bishop.

However, it is harder for connector manufacturers to pass price increases on to large OEMs and electronics manufacturing services (EMS) customers.

"Big OEMs have market clout and can fight off price increases," said Bishop.

Medium size OEMs and EMS providers lack the clout, but understand why prices are increasing even if they don't like paying the higher prices.

"Buyers have seen regular price increases due to raw material price increases," said Bavo Teunissen, global marketing communications director for connector manufacturer FCI. "The price increases are accepted because they understand that raw material prices have a major impact on overall connector cost. Precious metals are a significant part of connector cost."

Teunissen agreed with Bishop that connector prices will increase "if the price of gold, palladium, copper and oil continue to go through the roof."

Some manufacturers said they are reluctant to increase component prices even if raw material prices increase.

"We are sensitive to raising prices because when you do, customers tend to look elsewhere to buy products," said Mountford.

According to Mountford, C&K raised prices three to seven percent last year depending on the product and more increases are possible this year.

"We use gold, silver, brass and plastic in 90 percent of what we make," Mountford said. "Gold and silver are at record highs and brass is approaching it. Oil is more than $90 per barrel."

Mountford said raw material "is a big part of our cost of goods sold, and we can't absorb all those increases."

"We use a lot of lean techniques and try to manufacture efficiently and take cost out of our processes," said Mountford. "But we can't offset all the raw material increases."

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