Bishop: Connector prices will drop as demand weakens

Competition for orders should drive down prices

By Jim Carbone -- Purchasing, 7/16/2008 11:12:00 AM

Connector prices could fall in the second half despite higher raw materials costs because the strongest demand for connectors in 2008 may be over.

Connector orders were up for the first five months of the year, says Ron Bishop, president of researcher Bishop and Associates in St. Charles, Ill. “Year-to-date orders were up 13.9% through May. Sales are up 12.3% from one year ago.” But Bishop says there appears to be a slowdown in connector demand. In May orders were up only 4.2% from May 2007. In April, they were up 16.6%. He says double-digit monthly increases in orders in the second half are unlikely.

While sales were up 12.3% for the first five months of the year, revenue will rise 7% for the year, according to Bishop. If orders decline—indicating weaker demand—it will be hard for connector manufacturers to pass on higher costs for materials. Copper, gold and materials used in connector production have increased during the past 12 months.

Last year, when raw materials costs increased, “connector manufacturers started to increase prices to distributors and then slugged it out with large OEMs every time a new contract came up,” says Bishop. “Suppliers got some concessions.” The net effect was a 1-2% increase in prices. Usually connector prices fall 2-5% each year.

“In the second half, connector demand will be softer and it is going to be difficult for connector makers to not compete on price a little bit more aggressively to get the order,” says Bishop. “We are going to see some price erosion again.”