MARKET OVERVIEW

END MARKETS ARE MOVING AT DIFFERENT SPEEDS

• Despite overall bookings improving, most manufacturers remain cautious about increasing their capacity utilization.
• Most manufacturers are maintaining capacity utilization at 80%, with book-to-bill ratios ranging from 1 to 1.03.
• Despite the modest rise in book-to-bill ratios, manufacturers remain cautious about increasing capacity, noting that the improvements are localized and not reflective of a broad industry-wide trend.
• AI-related applications and the Defense & Aerospace segment are experiencing significant growth, while the Industrial and Consumer markets remain lackluster.
   

RAW MATERIAL AND GEOPOLITICAL UNCERTAINTIES

• Copper prices have shown signs of softening from the peak of $11,000 per ton in May 2024. However, they are still relatively high, hovering around $9,400 per ton. Connector manufacturers are closely monitoring copper prices due to the high usage of copper in their products.
• With continued geopolitical pressures, Suppliers are also monitoring the impact of potential tariff hikes on Chinese imports to the USA. 

 

SUPPLY

• Most of the suppliers’ factories are running at around 80% capacity utilization.
• Overall, key suppliers’ book-to-bill is seen to be improving. On average, the book-to-bill ratio is around 1.0 ~ 1.03.
• Connector lead times remain stable with no supply constraints from key raw materials such as metals and resins.
• There is no impact on our supply base due to the recent July typhoons in China & Taiwan.
• Excess inventory in the channel has reduced, suggesting potential future increases in lead times.
• Demand across market segments remains soft, with growth primarily in AI applications and the Defense and Aerospace market.

MARKET DYNAMICS

• Supply base remains stable with no sign of any suppliers exiting the market.
• In July 2024, Amphenol Corporation announced a definitive agreement to acquire CommScope’s mobile networks businesses for $2.1 billion in cash, subject to customary post-closing adjustments.
   
  • The deal includes the purchase of CommScope’s Outdoor Wireless Networks (OWN) segment and the Distributed Antenna Systems (DAS) business.
  • OWN provides wireless infrastructure for mobile networks, including macro and small cell site solutions. The DAS business offers solutions for the cellular infrastructure inside venues, campuses, and enterprises.
• In July 2024, Amphenol Corporation announced a deal to acquire Lutze. Lutze US closed during the quarter, and Lutze Europe is expected to close in the third quarter.
   
  • Lutze is a leading provider of harsh environment cable and cable assembly solutions for high-technology applications in the industrial market.
  • The acquisition includes two businesses: Lutze US, based in North Carolina, and Lutze Europe, based in Germany. In May, Amphenol closed on Lutze US, which has annual sales of approximately $75 million. Amphenol expects to close on Lutze Europe, which has annual sales of roughly $100 million, by the end of the third quarter of 2024.
  • Lutze product portfolio includes industrial cables, current control, power supplies, and network-controlled Ethernet.
  • Lutze businesses are reported in our Amphenol Harsh Environment Solutions segment.

 

PRICE

• Pricing for "PCB Connector type" saw reductions in 2024, commonly used across various market sectors. 
• High freight rates persist due to logistics forwarders adjusting to short-term contracts and increased trade costs from geopolitical pressures on China imports into the USA.
• Suppliers are open to pricing reviews to secure new business opportunities and increase share in existing business.
• Price increases are still occurring on low-margin and legacy products such as Headers and receptacles, D-Sub, Non-High-Speed I/O (USB2.0), and labor-intensive RJ45 Magjacks.
• Gold and copper prices remain high; connector suppliers are maintaining current pricing levels, but monitoring of raw material trends continues.

Price Trends (Annual vs Month)

SUPPLY

• The book-to-bill ratio is generally around 1 for Chinese brands, but Japanese and U.S. brands are still below 1. The home appliances market in Asia is gradually recovering, albeit slowly. Although the Chinese market continues to be affected by challenges in the real estate sector, its home appliances market is showing signs of improvement thanks to government incentives.
• While the overall relay supply remains flat, a significant disparity is emerging as production lines dedicated to the electric vehicle and renewable energy sectors are facing capacity and allocation constraints, preventing them from operating at full potential.
• We anticipate a substantial amount of customer pull-ins, as most end customers are taking a conservative approach, and relay capacity remains relatively rigid. Adjusting the production capacity of a standard relay line and achieving stabilization takes between six months and one year.

MARKET DYNAMICS

• The market is fraught with uncertainty, driven by geopolitical tensions and underwhelming performance in China's market, worsened by recent conflicts in the Middle East.
• There's a mixed demand in the relay sector, with signal relays experiencing a rebound, whereas power relays see a decline. The home appliances market in China is growing, with local brands improving, though U.S. and Japanese brands face challenges.
• The EV market in China is saturated, whereas the energy business is booming but is restricted to local Chinese brands only.
• Copper pricing is expected to increase over the next two years as mining supply disruptions in Peru and Panama coincide with higher demand for the material. The situation was exacerbated when China smelters, who process half of the world’s mined copper, agreed on a joint production cut to some loss-making plants.
• HongFa is establishing a new factory in Germany, scheduled for completion by the end of 2025. The facility will focus on serving the automotive segment.

PRICE

• While the prices for standard relays are expected to remain stable, the costs of raw materials, labor, energy, and transportation continue to fluctuate. Notably, copper, gold, and silver prices remain elevated. Traditional relay suppliers, including HongFa, Omron, and FCL(Fujitsu), are trying to maintain stable pricing. Panasonic HQ is reviewing the possibility of cost increases in the near future.
• While the price of basic TE relays will remain unchanged, we expect costs to increase for niche relays, particularly those used in automotive, aviation, military, and defense applications.
• Prices of solid-state and other specialty relays may fluctuate due to China’s export restrictions on semiconductor raw materials such as gallium and germanium.
• Industrial relays (contactors, safety relays, and others) from manufacturers like Eaton, ABB, and Schneider, as well as niche reed relays from Coto and SanYu Switch, remain vulnerable to cost increases. Manufacturers such as ABB, Eaton, Schneider, and others are continuing to implement an average annual price increase of approximately 5% to 7%.

SUPPLY

• Lead times have remained stable, suggesting no capacity or raw material constraints, though copper availability may still be a concern. Many switch manufacturers proactively increased their production capacities in 2022, which has played a significant role in maintaining the stability of the supply chain.
• Typically, switch manufacturers do not build inventory due to the nature of the product. However, 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 increasingly taking the place of traditional switches.
• China and ASEAN's consumer markets have grown slowly and steadily, while markets outside China and ASEAN continue to face uncertainty.
• Panasonic is gradually relocating its switch production line from Malaysia to Qingdao, China, and Japan.
• Much like Relay, the increasing price of copper, gold, and silver has created new challenges related to pricing and potential supply disruptions.

PRICE

• Despite the challenges, overall pricing has remained stable due to the considerable efforts of manufacturers. However, the rising prices of copper, gold, and silver, coupled with increasing energy costs, labor expenses, and inflation, are intensifying the situation.
• Specialized industrial switches, backed by companies like Eaton, ABB, Schneider, and others, are expected to see price increases of 5% to 7%. The rising copper, gold, and silver prices could further exacerbate this situation.

COPPER vs GOLD vs SILVER PRICES (ANNUAL)