SUPPLY

• Most suppliers’ factories run at 70 to 80% capacity utilization.
• Overall, key suppliers’ book-to-bill is still low, with a score of between 0.8 and 1.
• Lead times remain stable for connectors with no supply constraints from key raw materials like metals and resins.
• We have been monitoring the Red Sea Supply Chain risk with the supply base and see no impact on the supply date. Similarly, the January earthquake in Japan did not affect the supply base.
• Demand in the first half of 2024 across most market segments was generally slow, with customers adjusting their demand and supply chain channels as they tried to deplete inventory. Most expect demand to improve in the second half of 2024.
   

MARKET DYNAMICS

• The supply base remains stable with no tell-tale sign of suppliers exiting the market.
• Amphenol closed four acquisitions - TPC, Airmar, LID, and PCTEL.
  • TPC Wire and Cable: Based in Ohio and with annual sales of approximately USD 110 million, TPC is a value-added provider of harsh-environment cables and cable assemblies for the industrial market, including factory automation and heavy equipment.
  • Airmar: Based in New Hampshire and with annual sales of approximately USD 90 million, Airmar is a global leader in ultrasonic sensors and sensor systems for recreational marine, commercial fishing, and other industrial applications.
  • LID: Based in France and with annual sales of approximately USD 40 million, LID supplies pressure sensor products for the industrial and automotive markets. It focuses on tire pressure monitoring and the associated telematics.
  • PCTEL: In December 2023, they closed on the previously announced acquisition of PCTEL, a global leader in the engineering and manufacturing of antennas and wireless technology, including purpose-built Industrial IoT products and test and measurement solutions, with annual sales of approximately USD 85 million.
  • TPC will be included in the Amphenol Corporation – Harsh Environment Solutions Segment (AHES), Airmar and LID will be included in the Interconnect and Sensor Systems Segment (AISS), and PCTEL will be included in the Communications Solutions Segment (ACS).
• TE Connectivity: In December 2023, they announced the settlement of its public tender offer for all publicly held shares of Schaffner Holding (SIX: SAHN). TE Connectivity currently owns 627,658 Schaffner shares. This corresponds to the participation of 98.7% of the issued share capital and voting rights of Schaffner Holding.
  • The acquisition will enable TE to add Schaffner's market-leading EMC filter offerings to its connectivity and sensing portfolio for high-growth industrial and automotive applications.

Forward-Looking Markets Trend Outlook:

• Automotive: Overall, demand is forecasted to decrease as demand adjustments are seen in Automotive Manufacturers in the first half of 2024. Expect the demand to improve in the second half of 2024. The Electric Vehicles market continues to be this segment's key growth driver.
• Industrial: Overall segment demand is softening - driven by Capital Equipment and Power Generation markets.
• Telecommunications (5G, Cloud, Wireless Network): AI demand for data centers is expected to be strong. Hyperscale customers for the other 5G, Cloud, and Wireless networks are still depleting their inventory in the first half of 2024, but they expect demand to improve in the second half.
• Consumer: Overall, demand in this segment remained soft in the first half of 2024. However, there are signs of demand recovery in Mobile Devices due to 5G adoption.
• Medical: Demand is generally stable in this segment.

PRICE

• Overall, the price of connectors in 2024 should be reduced for PCB connector types commonly used across market segments. Expect costs to trend down in the second half of 2024.
• Raw materials pricing remains stable, except for gold pricing, which is still high.
• Suppliers are still experiencing increased energy, labor, and inflation costs.
• Most suppliers are open to a pricing review for new business opportunities and for getting more share on existing business.
• There are still some price increases on low-margin and legacy products like Headers and Receptacles, D-Sub, Non-High Speed I/O (USD2.0), and labor-intensive RJ45 Magjacks.

SUPPLY

• While the overall utilization of supplier factories is at 60%, there’s a considerable imbalance. Product lines catering to the electric vehicle and renewable energy sectors are encountering capacity limitations and allocation issues. Additionally, most traditional relay production lines are being scaled down.
• The book-to-bill ratio remains below 1 overall. Relays linked to electric vehicles and renewable energy are experiencing limited availability, resulting in extended lead times. Furthermore, a discernible trend of shrinking end-customer demands introduces additional complexity to the supply and demand situation.
• We expect significant customer pull-in, as most end customers are very conservative, and relay capacity is inflexible. Modifying the production capacity of a standard relay line from the start until it stabilizes requires six months to one year.

MARKET DYNAMICS

• Geopolitical tensions continue to create uncertainty in the market.
• China's market performance has fallen short of initial projections, compounded by recent military disturbances in the Middle East.
• Tier 1 relay manufacturers are strategically directing their attention towards high-power DC relays, positioning themselves to capitalize on the burgeoning markets of EVs and renewable energy.
• The relay manufacturers remain unfazed by U.S. sanctions, opting to enhance flexibility by relocating additional production lines back to China.

PRICE

• Although the overall pricing for relays has largely stayed flat, the costs of raw materials, labor, energy, and transportation remain unpredictable but high. Prices for standard relays are anticipated to remain steady, yet solid-state relays could see price increases owing to China's export restrictions on semiconductor raw materials like gallium and germanium.
• TE Connectivity's relay and industrial relays, contactors from manufacturers like Eaton, ABB, and Schneider, and niche reed relays from Coto and SanYu Switch are still susceptible to cost increases. Manufacturers such as ABB, Eaton, Schneider, and others persist with an average annual price increase of approximately 5% to 7%.
• Prices from conventional relay suppliers such as Omron, HongFa, and Fujitsu have remained stable despite certain raw material costs experiencing incremental increases.

SUPPLY

• Lead times have maintained consistency, showing no signs of constraint in both capacity and raw material availability. Numerous switch suppliers took preemptive steps to enlarge their production capacities in 2022, playing a key role in enhancing the stability of the supply chain.
• The book-to-bill ratio is currently below 1, indicating a subdued level of bookings. However, C&K and CTS are witnessing an upswing in volume, particularly in the computing sector, with a notable increase in business from customers involved in AI applications, especially in Taiwan.
• Most switch suppliers typically run their factories at approximately 70% utilization. It's common for these suppliers not to build and maintain inventory as part of their standard practices.

MARKET DYNAMICS

• The Switch market is transforming, with touch panels and other pressure or touch-sensing components increasingly replacing traditional switches.
• Diptronics has revealed preliminary plans to set up a factory in India, including the possibility of forming partnerships. This move is part of its strategy to tap into the Automotive market in India, though these plans are in the early stages of development.
• Panasonic is relocating its plant from Malaysia to China, driven by a strategic move to tap into the robust Chinese market and secure a stronger foothold in the region.
• The C&K and Littelfuse integration is anticipated to face additional delays and is now projected to extend into late 2024. The cost structure of Littelfuse will present significant challenges to C&K pricing in the future.

PRICE

• Overall pricing has remained stable. While there is no immediate constraint regarding capacity or raw materials, factors such as energy costs, labor expenses, and inflation counter the potential for cost reduction.
• Specialized industrial switches, backed by companies like Eaton, ABB, Schneider, and others, are anticipated to experience potential price hikes. This is significant, especially considering Schneider's previous announcement of price increases for most industrial switches in earlier quarters. 
• Following Littelfuse's investigation into C&K's current cost structure, C&K is anticipated to increase its costs shortly.