Deep cuts in the supplier base by OEMs and EMS providers are putting pressure on midtier connector manufacturers to survive in a market dominated by few.
By leveraging their technological strengths in uncharted sectors, expanding their product offerings, and emphasizing service, midtier connector makers believe they can go up against established players and land a desirable spot on some major approved-vendor lists. Many are also trying to gain a global presence through acquisition.
Despite their efforts, midtier connector suppliers that rank below the top 10 and cap out at approximately $300 million in annual revenue are vulnerable to industry consolidation, analysts said.
"Medium-size companies will be challenged by larger industry players. You don't want to be a medium-size commodity supplier," said Eric Gomberg, an analyst at Thomas Weisel Partners LLC, New York.
While the connector industry remains highly fragmented among more than 2,000 suppliers, analysts note that the top tier now accounts for over half of global revenue.
Fleck Research, Santa Ana, Calif., estimated that the top five suppliers accounted for nearly 36% of the $32.2 billion in 2001 worldwide sales. It expects 2002 sales to increase to $35.1 billion.
The increase stems mainly from consolidation, a trend that is expected to accelerate this year as OEMs and EMS providers favor large suppliers with broad product portfolios and global manufacturing capabilities over smaller vendors lacking those resources, according to a report by Morgan Stanley Dean Witter & Co., New York.
The report added that suppliers need to become approved vendors with EMS providers because more OEMs rely on them for manufacturing and design.
One unnamed EMS provider said his company's preferred-connector-supplier list includes broad-based global companies such as FCI, Molex, and Tyco. However, he added that one midtier supplier was also on the roster because it provided quick turnaround on orders.
Need for speed
To attract EMS and OEM customers, some midtier suppliers have implemented a rapid-service strategy. Samtec Inc., New Albany, Ind., offers one- to five-day delivery on almost all of its products, with some commodity parts in less than three days, according to Danny Boesing, director of marketing. Boesing added that unlike some suppliers, Samtec requires no minimum order quantity.
Samtec, which builds printed circuit board connectors, has also established a global presence with plants in Singapore and the United Kingdom, as well as seven sales offices throughout Europe and the Far East.
To differentiate themselves, many midtier suppliers have focused on products for niche markets.
"We've tried to stay away from commodity connectors," said John Dwight, chairman, president, and chief executive of PCD Inc., Beverly, Mass. "We build relay sockets, junction modules, and industrial terminal blocks."
The company four years ago acquired Wells-CTI, a Phoenix-based supplier of semiconductor burn-in sockets. But the industry slump forced PCD to close a plant in South Bend, Ind., and move some manufacturing to Japan.
Still, Dwight expects PCD to strengthen its global presence through further acquisitions.
Industrial strength
Another supplier capitalizing on the industrial market is the Wieland Group, a Germany-based company with subsidiaries in Canada, France, Italy, Poland, Spain, and the United States. The privately held company generated almost 70% of its estimated $300 million in 2001 revenue from the industrial and power distribution markets, according to Carl Gruenberg, president of Wieland's U.S. subsidiary, Wieland Electric U.S., Burgaw, N.C.
Gruenberg said Weiland sells 50% of its products through distribution, and they are designed into several major companies' computers. To be a one-stop supplier to its customers, he added that Wieland has in recent years added relays, wiring duct, and power supplies.
ERNI Components Inc., Chester, Va., is using its strength in backplane connectors to provide value-added products and services. The U.S. subsidiary of Germany-based connector supplier ERNI GmbH formed a backplane and technology products division in December that will develop backplane systems based on its ZD high-speed connectors.
"We're developing a global backplane strategy," said Michael Savage, vice president of sales at ERNI Components, adding that the division will perform front-end system design, building custom products and system enclosures and subracks.
Savage also expects ERNI's acquisition last year of Maxconn Inc., a Santa Clara, Calif., supplier of modular jacks, to attract OEMs and EMS companies building computer systems. He added that ERNI recently gained preferred-supplier status with an unnamed EMS company.
Ron Bishop, an analyst at Bishop and Associates Inc., St. Charles, Ill., believes midtier suppliers with strong technological niches and an offshore presence can survive, but still expects more acquisitions-possibly major ones-to occur as larger suppliers seek to strengthen themselves for an industry upturn.
