How Did the Connector Industry Perform in 2021?
Ron Bishop of Bishop & Associates shares connector sales numbers and insights into the factors that led to an extraordinary year.
Bishop & Associates has closely monitored the connector industry since 1985. Led by founder Ron Bishop, the market research firm has tracked and reported on the expansion of interconnect products, the emergence of transformative technologies, and the performance and activities of the connector companies behind it all. Along the way, the connector industry has weathered boom and bust years. This year will result in the second largest sales growth in industry history. The Connector Supplier team talked with Bishop to learn more about why 2021 will be one for the record books.
What are the industry’s 2021 sales [through October]?
Orders are up 40.8%. Sales are up 26.2%. These are astronomical results. The book-to bill (BTB) ratio is 1.14. Historically, the annual book to bill ratio is 1.0, 1.01, or 1.02. A BTB of 1.14 is unheard of in the connector industry.
In another example of how excellent business conditions are in 2021, the backlog was only $8.0 billion in 2019 or 6.5 weeks of lead time. In 2021 the backlog of orders increased to $19.5 billion which equals 13.1 weeks of lead time. The industry has increased the backlog from $8 billion in 2019 to $19.5 billion in 2021. That’s a 140% increase, which is just incredible.
Connector Industry Backlog
What factors have led to this growth?
In 2020, the economy was basically limping along with many businesses shut down. Spending declined and savings increased because government programs ensured that people continued to be paid. This resulted in a buildup of cash. As the global economy reopened there was sufficient cash to meet the pent-up demand.
Will this demand level off?
Sales in 2021 will probably end the year up by around 24-25%. Right now, connector sales are up 26.2%. We expect 2022 to result in growth but at a much lower rate. The slower growth will be the result of world GDPs slowing (the U.S. GDP is projected to only grow 2% in 2022) and shortages of semiconductors and other components. We are forecasting connector industry 2022 growth in the 7-8% range. This is still historically good growth but modest compared to 2021 sales growth of 24-25%.
Are connector prices increasing?
The industry has experienced large price increases in raw materials used for connectors — gold, plastics, copper, brass, and steel. The cost of these materials increased 42.5% through October. The rising raw material costs and strong connector demand has caused connector companies to increase their prices. We expect companies to increase prices in 2022 at least twice. Further, we expect each semi-annual price increase will average between 4% and 6%. It is important to understand material costs account for about 40% of the cost of a connector.
How evenly is this increase in demand distributed across markets?
Typically, demand by market sector is uniform. There are exceptions; for example, a semiconductor shortage in the automotive space will cause a decline in the number of cars manufactured. Because the automotive industry is the largest connector market, there will be a large negative impact on the connector industry. We also experienced larger than normal demand for telecommunications-related connectors for the build-out of 5G infrastructure. However, market sectors normally move up and down in the same direction and in the same percentage of growth or decline. As noted, markets diverge when there are unusual events such as the semiconductor shortage.
How are supply chain challenges impacting the connector industry?
I think we have learned lessons about relying on China for products, especially pharmaceuticals. We have all heard the stories about the record number of ships sitting off the California coast. Many of the products coming from China could have been manufactured in the U.S., so a number of the supply chain problems are of our own making. Also, the pandemic-related shutdowns prevented the training of new truck drivers. Now we have a shortage of drivers. The last government Paycheck Protection Program was a disincentive to people returning to work. This was an interesting phenomenon, to have people receiving compensation to stay home. COVID has really had a major impact on the supply chain.
Do you think OEMs are stockpiling to make sure they can cover future demand?
With GDPs starting to decline, I worry about how much of the industry’s $19.5 billion backlog will ship. Will connector customers push those orders out further? Will they start canceling orders? That could be a major issue going forward: Will this backlog end up shipping or not? That is the big question for 2022. I am convinced that the current demand will slow in 2022. It would not surprise me if we began to witness customers pushing out orders. I do not believe there will be a rush of order cancellations.
Do you see connector companies that offshored manufacturing bringing that function back into the United States and Europe to ease supply chain problems?
Yes. Manufacturing is starting to return to the U.S. and Europe. We have been witnessing this for the last three or four years. Companies are just not investing in China at the rates they used to. Any new investment from the West is aimed at supplying China’s domestic demand, not to supply demand that is located in the West. Countries are beginning to realize not making products domestically creates problems — supply chain problems and security problems. It is especially troubling when medical products are manufactured in China. Equally concerning is the manufacture of defense-related products such as steel. I believe the great exodus of manufacturing from the West to the East has ended.
In 2022, Connector Supplier will publish quarterly industry updates from Ron Bishop, as well as special conversations on the issues and topics that influence the connector world.
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