E-Base

There's a new low for the connector industry.

World connector sales are down 16.8 percent through August 2002 compared to the same period last year. The lack of growth in 2002 follows a decline in sales of 19.1 percent in 2001 -- the worst year in connector industry history. On a regional basis, 2002 connector sales in the United States, Europe and Japan are down in double-digit territory. Only the Asia/Pacific region continues to grow in 2002.

On a market-by-market basis, there is a bit more good news. Currently, three market sectors are growing: Automotive is up 2 percent, military/aerospace is up 7 percent, and medical electronics is up 9 percent. These three markets make up only 27 percent of world connector demand, and the slower-growing market, automotive, accounts for 20 percent of world connector demand.

Meanwhile, the computer and telecom markets are 42 percent of world connector demand (computer gets 26.4 percent; telecom with 15.1 percent). Both of these large markets are experiencing double-digit declines. Telecom sales have declined 30 percent year-to-date as of August. This follows a 2001 decline of 35 percent in telecom-related connectors.

Additionally, forecasts remain bleak for the remainder of 2002 and 2003. For example, carrier equipment (digital switches, PBXs, etc.) capital spending has dried up because long- and short-haul carriers have excess capacity both in copper and fiber systems. For now, spending is on maintenance and repairs of existing equipment, or replacement of worn-out equipment. Analysts are not predicting a pickup in this sector until 2004:

The enterprise network (routers and bridges) sector also continues to be a declining market. Corporations are not spending on new systems, opting instead to more fully utilize capacity on the installed base. Again, forecasts for this market are to remain lethargic throughout the remainder of 2002 and most of 2003. The wireless equipment sector is doing better, with handsets showing a modest uptick. However, historical annual growth rates of 30 percent to 40 percent are over. Instead, handsets are forecast to grow annually in the 6 percent to 7 percent range.

And, carriers have reduced capital investments in the wireless infrastructure, i.e., base stations. The computer market is also going through a global slowdown that is affecting all equipment categories, such as PCs, workstations and servers. Here again, corporations are being conservative on capital spending, deferring investment in new systems and software. Spending will probably not increase significantly until world economics start to improve and companies are more confident about future growth in sales and earnings.

Ronald Bishop is principal of Bishop & Associates Inc., based in St. Charles, Ill.

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