SUPPLY

• Most suppliers' factories are operating at 80% capacity utilization.
• Key suppliers are reporting stronger book-to-bill ratios, averaging 1:1 to 1.15, driven by increasing AI technology demand.
• Inventory levels in distribution channels are depleting as suppliers continue fulfilling customer orders and replenishing stock.
• High-speed connectors, critical for AI-driven Data Center Infrastructure, are experiencing supply constraints. Lead times may extend from the current 8-10 weeks to 12-16 weeks.
• The supply base remains stable, with no indications of any suppliers exiting the market.

MARKET DYNAMICS

• The demand for AI applications continues to be strong, serving as a major demand driver for connector suppliers
• Most manufacturers are operating at 80% capacity utilization, with book-to-bill ratios ranging from 1:1 to 1.15.
• The stronger book-to-bill ratio is attributed to the rising demand for AI-related applications.
• Major connector suppliers have cautioned about potential capacity constraints, particularly for High-Speed Connectors, and advise against placing short lead-time orders.
• Demand across most market segments remains soft for the first half of 2025, with growth primarily driven by AI demand for Cloud and Hyperscale customers, as well as the Defense and Aerospace sectors.
• While AI-related applications and the Defense & Aerospace market show increased demand, other segments remain flat.

REGIONAL VARIANTS: CHINA+1 STRATEGY ACCELERATES AS TARIFF THREATS LOOM OVER CHINA

• Global manufacturers are increasingly establishing manufacturing facilities outside of China.
• China-based suppliers are also actively expanding their operations to locations outside of China.
• Common China+1 locations include Thailand, Vietnam, Malaysia, and India.

RECENT DEVELOPMENTS

• On September 17, 2024, A transformative partnership was established with LUXSHARE’s investment, LEONI AG, and its Wiring Systems Division (WSD), to gain an additional powerful shareholder, significantly enhancing market access, technological innovation, and financial stability. Simultaneously, the LUXSHARE subsidiary TIME Interconnect Singapore will acquire the Automotive Cable Solutions (ACS) division from LEONI AG.
  • A legally binding agreement for this strategic partnership was signed. Austrian entrepreneur Stefan Pierer and China’s LUXSHARE have agreed that LUXSHARE will acquire a 50.1% stake in LEONI AG, which was previously fully owned by Pierer. “Having LUXSHARE as a strong strategic partner will significantly enhance LEONI’s competitiveness across all fronts – from portfolio expansion and market access to technological capabilities and production,” said Klaus Rinnerberger, CEO of LEONI AG. 
  • Grace Wang, Chairman and CEO of LUXSHARE Group, added: “We are excited about the potential of this partnership. By combining our strengths, we will not only expand our global footprint but also drive innovation and deliver greater value to our customers.”
  • In a parallel transaction, TIME Interconnect Singapore – a joint venture between LUXSHARE subsidiaries LUXSHARE-ICT and TIME Interconnect Technology (TITL, listed on the Hong Kong Stock Exchange) – will acquire 100% of LEONI AG’s ACS division. Following the carve-out, ACS will continue to position itself as a leading independent manufacturer of automotive cables.
  • The execution of the legally binding agreement is subject to antitrust review and approval.

• On November 14, 2024, Molex, a leading global connectivity and electronics solutions provider, announced the signing of an agreement to purchase AirBorn, Inc. 
  • AirBorn Inc., an employee-owned company headquartered in Georgetown, TX, specializing in the design and manufacturing of rugged connectors and electronic components for global Original Equipment Manufacturers (OEMs) serving the aerospace and defense, commercial air, space exploration, medical, and industrial markets.
  • “The acquisition of AirBorn brings strong capabilities to Molex in the aerospace and defense market,” said Joe Nelligan, CEO, of Molex. “Combining Molex’s engineering breadth and manufacturing scale with AirBorn’s expertise in ruggedized, mission-critical products will enable us to better serve the evolving needs of our customers in this fast-growing global market.”
  • For more than 60 years, AirBorn products have been trusted to perform in extreme conditions where mission-critical reliability is vital to success. “AirBorn will serve as the platform for Molex’s aerospace and defense business, which is a powerful opportunity for our highly specialized team,” said Michael Cole, President and CEO, of AirBorn. “By uniting AirBorn’s unique expertise in the aerospace and defense market with Molex’s global scale, capabilities, and financial stability, we will ensure long-term success in a rapidly expanding category.”  
  • This acquisition is expected to close by early December 2024, subject to regulatory approvals and other customary closing conditions. More information will be shared at that time. The details of the purchase price will not be disclosed. 
  • Connector Types are mainly PCB and I/O Connectors.

• On November 14, 2024, Bel Fuse Inc. announced that it has closed the previously announced majority stake acquisition of Enercon Technologies, Ltd. (“Enercon”) from Fortissimo Capital based on an enterprise value of $400 million. Bel has acquired an 80% stake upfront for $320 million (subject to customary adjustments), plus up to $10 million of potential earnout payments for the 2025-2026 period, with the intent to purchase the remaining 20% by early 2027 based on future EBITDA performance. The transaction was funded through the utilization of cash on hand of approximately $80 million, with approximately $240 million provided through incremental borrowings under the Company’s revolving credit facility.
  • Enercon is a leading supplier of highly engineered power conversion and networking solutions to military and aerospace markets globally. Enercon is headquartered in Netanya, Israel with manufacturing sites also located in North America and India. The company typically operates as the sole supplier of its products, providing robust and reliable solutions across air, land, and sea applications. The full business has LTM Q3 2024 sales of $115 million with a gross profit margin of 47%.
  • This acquisition allows Bel to extend its product portfolio supporting the aerospace and defense markets to include power solutions, with clear potential cross-selling opportunities in the future. Bel’s manufacturing footprint expands further into India and the U.S. with new manufacturing capabilities and a talented group of engineers based in Israel. Enercon will operate independently under the Bel Power and Solutions segment.

PRICE

• Connector pricing in 2025 is expected to decline for PCB Connector Types, which are widely used across various market segments.
• Price increases and some End-of-Life (EOL) activities are being implemented for low-margin and legacy products to sustain production and overhead costs.
• Connector types impacted include Headers & Receptacles, D-Sub, Non-High Speed I/O (USB 2.0), and labor-intensive RJ45 Magjacks.
• Gold and copper prices remain elevated. Most suppliers are maintaining current pricing levels but are open to pricing reviews for new business opportunities or share gains on existing accounts.

Price Trends (Month vs Annual)

SUPPLY

• The book-to-bill ratio is typically close to 1, with overall capacity utilization ranging from 70% to 80%. Certain specialized product lines, such as those for low-voltage or automotive applications, may experience capacity constraints. Relay manufacturers usually do not maintain inventory.
• The home appliances market is gradually recovering due to low inventory levels. In China, government policies encourage consumers to exchange old home appliances for new ones. However, the automotive and industrial sectors are currently underperforming.
• Average lead times are decreasing, except for specific types, such as unique automotive and low-voltage relays, which remain under allocation. Adjusting the production capacity of a standard relay line and achieving stabilization takes between six months and one year.
• We anticipate a substantial amount of customer pull-ins, as most end customers are taking a conservative approach and relay capacity remains relatively rigid. 
• Panasonic already announced their GQ series is managed by allocation due to limited production capacity.

MARKET DYNAMICS

• Gold and silver prices soared due to escalating geopolitical tensions in the Middle East, US presidency uncertainty, and global central bank easing measures. Analysts predict continued upward momentum for gold.
• The EV market in China is saturated, while the energy sector is booming but remains limited to local Chinese brands.
• Copper prices remain elevated and volatile due to concerns over China's economic outlook and the potential impact of a second Trump presidency.
• HongFa's European manufacturing facility in Germany commenced construction in September 2024. Volkswagen has entered into a contractual agreement with HongFa for the production of automotive relays at this site.
• Sanyou's aggressive low-price market penetration strategy may have strained its margins. Due to shareholder pressure, the company might be forced to increase prices soon.

PRICE

• All relay manufacturers strive to control their costs, but the prices of raw materials, labor, energy, and transportation continue to fluctuate. Notably, silver and gold prices are approaching their peak, while copper has slightly decreased but remains high. 
• Traditional relay suppliers, including HongFa, Omron, and FCL(Fujitsu), are making every effort to maintain stable pricing. 
• Panasonic notified the market of price increases for certain series of power relays, signal relays, and safety relays effective November 2024.
• Most TE relay prices will remain stable, with only a small number of low-usage relays seeing minimal cost increases.
• The price of solid-state and other specialty relays may fluctuate due to China's export restrictions on key semiconductor raw materials such as gallium and germanium.
• Industrial relays, including contactors and safety relays from manufacturers like Eaton, ABB, and Schneider, as well as specialized reed relays from Coto and SanYu Switch, remain susceptible to cost increases.

SUPPLY

• Lead times have remained stable, suggesting no capacity or raw material constraints, though copper availability may still be a concern.
• Like relay manufacturers, switch manufacturers require a 6-to-9-month timeframe to augment their production capacity through the establishment of an additional production line.
• Given the nature of switch products, manufacturers generally avoid holding inventory. Nevertheless, conservative demand forecasts from end customers frequently result in abrupt surges in demand, which may exceed the free capacity of suppliers.
• C&K and CTS are experiencing a surge in volume, especially in the computing sector, with significant business growth from customers involved in AI.

MARKET DYNAMICS

• The switch market is evolving, with touch panels and other pressure-sensitive or touch-sensing components gradually replacing traditional switches.
• Consumer markets have started to grow gradually, while AI has provided a boost for only certain switch manufacturers.
• Diptronics’ India plans are temporarily on hold due to issues with its current local partner, leading to a contract termination. Management may reconsider its strategy for the Indian market.
• Much like the relay commodity, the increasing price of copper, gold, and silver has created new challenges related to pricing and potential supply disruptions.

PRICE

• Despite industry challenges, manufacturers have managed to maintain relatively stable pricing. However, rising raw materials (Copper, Silver, and Gold) and labor costs, coupled with inflation, are beginning to exert upward pressure on prices.
• Specialized industrial switches, supported by companies such as Eaton, ABB, and Schneider, are anticipated to experience price increases. This trend may be further intensified by escalating costs of copper, gold, and silver.

COPPER vs GOLD vs SILVER PRICE TRENDS (5 Years)