- 1 Bishop & Associates visited with connector firm CEOs at electronica 2018. Gross sales this yr have been largely excellent, however the connector business forecast for 2019 stays unclear.
Bishop & Associates visited with connector firm CEOs at electronica 2018. Gross sales this yr have been largely excellent, however the connector business forecast for 2019 stays unclear.
Most connector producers on the electronica 2018 commerce truthful, which happened November 13–16 in Munich, have been capable of look again upon a really profitable 2018, as this yr has turned out to be the second consecutive yr with double-digit progress for the worldwide connector market. After 11.zero% progress in 2017, Bishop & Associates estimates that 2018 will shut with 11.2% progress over 2017. However what does the connector business forecast for 2019? It stays to be seen.
Such excessive progress charges over a short while interval do have downsides, nevertheless. Some corporations grew by 20+ proportion factors, and speedy enlargement can put strains on a corporation, its provide chain, and manufacturing capability.
Was 2018 a superb yr throughout the board? Not totally. Some clouds have gathered over the automotive market. This sector has slowed down around the globe resulting from quite a lot of elements. In Europe, new emission testing laws introduced a surge of gross sales earlier within the yr, adopted by a slowdown. Within the US, tariffs on aluminum, metal, and digital elements hit a sector already shifting right into a cyclical downturn. (Every week after electronica, US automaker GM introduced mass layoffs and plant closures within the US and Canada, because it restructured to ship these jobs to China and Mexico.) Along with the continued uncertainty surrounding the commerce warfare between China and the US, tense Brexit negotiations performed within the background of the present. Occasions impacting the automotive sector may cause a ripple impact in different markets, similar to industrial robots, as properly, so the electronics business is more likely to see hassle forward in lots of auto-related areas.
In the course of the present, the information additionally got here in that the German financial system had contracted within the third quarter of 2018, the primary contraction the nation has seen since 2015. This contraction is attributed to the slowdown within the German automotive market and to decrease exports because of uncertainties in worldwide markets. Germany, the motor of the European financial system, is a vital bellwether for the broader EU financial system, and progress within the EU has successfully softened.
Within the US, the extremely anticipated November midterm elections resulted in a shift in legislative powers. But, how this can affect the agenda of the Trump administration over the approaching two years stays to be seen. The financial system is robust and unemployment is at a document low. Nevertheless, divergence between financial insurance policies within the US, Europe, and different areas makes the US greenback stronger, and which will ultimately begin to harm US exports. US wage rises, which hit a nine-year excessive, might have an analogous impact, however the impression of those rises is tempered by greater inflation.
So far as the uncooked materials markets are involved, crude oil costs rose in 2018 — till the third quarter. From October onward, crude oil costs have nosedived. Costs of uncooked supplies tracked by Bishop & Associates, together with copper, gold, metal, and plastics, elevated by a mean of eight.9% within the first half of 2018.
Suggestions from connector makers on the present offered us with a combined image. Numerous corporations reported growing lead occasions for chosen merchandise. Different corporations didn’t assume lead occasions have been an enormous difficulty. Lead occasions are coming down barely, with bookings softening within the third quarter. Usually, it seems that for chosen product/market mixtures, lead occasions elevated resulting from uncooked supplies availability and lack of manufacturing capability.
Uncooked Supplies: Pricing and Availability
General, connector producers on the present stated they don’t seem to be tremendously affected by uncooked materials costs and availability, however there have been definitely exceptions. Some producers struggled with very particular points.
Thus far, gold has not gone up excessively. As well as, gold costs are sometimes coated by a “gold clause” in giant blanket contracts. If inventory markets stay risky and in destructive territory, nevertheless, we may even see gold costs rise. Palladium costs, however, have soared. Palladium nickel is used within the connector business instead for gold and it’s utilized in automotive catalytic converters to course of polluting gases into much less dangerous gases.
Issues accessing particular copper alloys (e.g., beryllium copper) and plastics have been talked about by a number of manufactures. Rising oil costs at first of the yr led to greater costs for plastics. In some nations, new laws that regulates plastics manufacturing and waste additionally impacts this business. Points surrounding plastics appeared to have an effect on the connector business greater than these involving different uncooked supplies.
Issues at Baoshida SwissMetal, which introduced an “adjournment of chapter till mid-April 2019” in October, additionally had an influence, notably on European corporations. Bringing in new uncooked materials suppliers shouldn’t be all the time straightforward, and they don’t seem to be ample. As demand continues to be excessive, they could additionally quote excessive costs and provides lengthy lead occasions for brand spanking new clients.
Shortages of sure digital elements and passives additionally influenced connector markets. Some elements ran up lead occasions as much as 20 weeks, forcing PCB makers to delay their orders for connectors and different elements, as they might not produce/end the boards with out the passives.
The current softening in bookings, mixed with slowdowns within the automotive sector, might have a constructive impact on uncooked supplies provides and costs, and take away a number of the bottlenecks.
Connector makers seemed to be on the identical web page so far as pricing is worried. Going ahead, the connector business forecasts minor worth will increase, within the vary of 1–three%, in 2019. In fact, worldwide commerce relations, comparable to impending tariffs, should have an effect on costs all through the availability chain.
On September 24, 2018, a 3rd spherical of tariffs carried out by the US towards China went into impact. This spherical included merchandise utilized by the electronics business, akin to copper, nickel, metal, and a wide range of different metals, in addition to chosen gear, home equipment, equipment, and different merchandise. These tariffs are presently at 10% however will improve to 25% on January 1, 2019, if the US and China fail to succeed in a profitable settlement earlier than the top of the yr.
Except for anyone’s political beliefs, the overall feeling amongst producers was that “tariffs are a nuisance” and “deliver uncertainty out there” however they are often managed. Tariffs will influence the availability chains and would require additional administration time and group however the present consensus is that they’ll have restricted influence on the enterprise. Most connectors corporations produce in China for the home Chinese language markets, and produce elsewhere in Asia for different markets, so tariffs towards China could have little impact.
However, tariffs might supply alternatives for different Asian nations, similar to Vietnam, Indonesia, Thailand, India, and South Korea. Some Chinese language OEMs and worldwide EMSs are contemplating shifting out of China and into considered one of these nations; some have already finished so.
Clearly, connectors made in China which might be exported may even see giant worth will increase on account of tariffs. This won’t have an effect on the overall connector market, as a lot of the quantity share of general gross sales is often low. Nevertheless, digital distributors might really feel the ache if tariffs (10–25%) feed via their provide chain.
Some end-use sectors are notably impacted. For instance, corporations that make automobiles or motorbikes within the US have weathered each metal (import) tariffs earlier within the yr and the next 25% import tariffs that China carried out in August on giant passenger automobiles and bikes.
Producers take a practical strategy so far as tariffs are involved. They’re conscious of the uncertainty the commerce warfare brings to the market and stay agile and able to reply accordingly. Because the business watches the negotiations unfold, we may even see delayed investments from OEMs and modifications to provide chains. Some merchandise and provide chain companions could also be impacted by vital worth will increase, however this can ultimately quiet down.
Trade Charges (FX) and Currencies
Trade charges are all the time a problem and lots of corporations will hedge towards excessive trade fee dangers. At current, the US greenback is poised to stay robust versus different main currencies.
The connector market seems to be softening in This fall-2018. Bookings are slowing, and book-to-bill sank under 1.zero in September. As talked about, OEMs could also be holding again some investments as a consequence of uncertainty in chosen markets (China/tariffs). The automotive sector, particularly, has been slowing down.
Semiconductor producers have seen a softer market. Texas Devices reported that the majority finish markets have slowed. TI believes that is principally pushed by a slowdown in semiconductors and isn’t a momentary drawback. Intel has been extra constructive about its outlook, however some market watchers think about this untimely. Then again, steerage by main distributors, closely relying on semiconductor gross sales, is upbeat. For second-quarter fiscal 2019 (Q1 calendar), Avnet estimates gross sales with year-over-year progress of 13% at midpoint.
Telecom/Datacom 5G connector improvement and design-in is in full swing. The rollout of 5G by main telecom suppliers is predicted to start out between 2020–2022, relying on the area/nation, and is poised to spice up the telecom connector enterprise. “5G Prepared” merchandise and gear are showing available on the market. Adoption charges might, nevertheless, be slower than anticipated in some areas as the prices of implementation and rollout are monumental for the telecom suppliers, and shoppers will not be able to foot the invoice. The (datacom) marketplace for server parks was very robust in early 2018 however is now leveling off to flat.
The automotive market is slowing down. Causes for this embrace:
- New laws for exhaust gases (WLTC) within the EU
- Diesel-gate (e.g., bans of diesel automobiles in lots of German cities, marketplace for diesel hit onerous)
- Growing rates of interest within the US
Even because the variety of automobiles that roll out of the manufacturing unit lower or stay flat, the e-content continues to be rising. Subsequently, the automotive enterprise might stay flat in 2019 for connector makers.
Civil Aviation and Aerospace. The business air market (pushed by Boeing and Airbus) will proceed to work on its backlog of eight+ years of orders. Each corporations have had provide issues, slowing the market a bit. The area market is sort of dynamic, and lots of personal corporations are becoming a member of in, so it stays a little bit of a wild card.
Army/Aerospace. This market sector is robust throughout the board as reported by most connector producers. There isn’t a cause to consider that is going to vary within the short-term.
Industrial. Most connector producers lively on this market reported a robust market throughout the board. Chinese language OEMs might maintain off on new investments in automation, relying on what occurs with the tariffs. Normally, China stays a wild card within the business and it isn’t recognized what they may do or how will they react to the tariffs. Though industrial equipment and gear was robust, the marketplace for industrial robotics is down sharply as automotive investments are held again. Nevertheless, industrial automation, as a long-term development, is poised to proceed.
Transportation can also be rising in lots of nations, and e-content performs a big position in new methods. Nevertheless, progress seems to be slowing in China.
House automation is one other rising market, however the development business in nations such because the US and Germany is hampered by a scarcity of staff wanted to construct houses and different buildings. Demand is outstripping provide and home costs are accordingly excessive in lots of city areas, though current declines are being noticed in lots of markets.
Outlook 2019: What shall be across the nook?
Bishop & Associates’s connector business forecast sees market progress in 2019 of +6.5% over 2018. Thus far, there isn’t any purpose to be pessimistic about 2019 and though comparisons turn into harder on account of good market progress in 2017 and 2018, we consider that Q1-2019 will present single-digit market progress. Nevertheless, many complicated elements are in movement, and it’s clever to stay vigilant and alert. Most of us keep in mind the dotcom crash in 2001, when sudden provide chain and stock changes wreaked havoc available on the market. We discover ourselves in an prolonged interval of robust demand, relative low cost cash, and excessive home costs. There’s, in fact, multiple means to take a look at this and interpret the info. We will’t ignore a possible commerce conflict between the 2 largest international economies. Different indicators within the semiconductor markets and the current tech sell-off on international inventory markets bear watching. Changes could also be across the nook.
Even so, the pipeline in every of the main business sectors is filled with new and thrilling purposes:
- 5G and associated spin-offs
- Assisted/autonomous driving, e-content in automobiles, EVs
- Continued manufacturing unit automation and robotics (Industrial IoT and Business four.zero)
- The Web of Issues usually (together with shopper markets)
- E-content in public transportion
- Robust progress in business aviation, plus drones and electrical plane
- A robust demand within the mil/aero market
These purposes and tendencies won’t go away. They’ll proceed to drive the market and even when we enter a interval of slower progress in 2019, this can be solely short-term.
As 2018 involves an in depth, Connector Provider and Bishop & Associates are intently watching occasions associated to Brexit, NAFTA and USMCA, and commerce between the US and China. Search for an replace within the weeks to return. If your organization is impacted by or has a profitable technique for managing tariffs and commerce uncertainly, we’d like to speak with you. Please contact Amy Goetzman to share your ideas.
Bishop & Associates will publish an up to date forecast report for the connector market in December 2018, which can think about all the newest developments.
Bishop & Associates just lately revealed a report titled Digital Business and Connector Outlook 2018 and Past that examines a number of main connector markets, together with aerospace, army, transportation, semiconductor, robotics, computer systems, medical electronics, and silicon photonics. The report identifies key tendencies over the subsequent decade and the way they may impression connector gross sales.
Concerned about a selected market? Click on a market under for present articles and information.
Automotive, Shopper, Industrial, Medical, Mil/Aero, Datacom/Telecom, and Transportation