Connector prices have finally stabilized after years of price erosion. On average, connector prices decline annually between 2% and 4%. In 2001 and 2002, prices were down 7%, down 5% in 2003, and down 4% in 2004 and 2005.

The continuing, historical erosion of connector prices has been primarily a function of:

• Globalization—Large multi-national OEMs exercised their purchasing clout by implementing the “Global Commodity Team” concept. The globally coordinated purchasing teams were charged with consolidating regional purchases into global contracts, awarding large purchase orders for price concessions.
• Vendor Reduction—By reducing the number of connector manufacturers, large multi-national OEMs can award larger contracts to fewer vendors and gain price concessions. Vendor resistance to lower prices resulted in removal from the “Vendor Approved List,” or smaller purchase order awards.
• Low-Cost Manufacturing—OEMs and CEMs moved manufacturing to China, India, and other less expensive labor/manufacturing countries. Connector manufacturers moved off-shore in support of the supply chain, achieved the desired manufacturing cost savings and then “passed through” the cost savings to their customers via lower prices. As a continuous stream of manufacturing moved off-shore, OEMs began to require on-going price reductions, quarterly in some instances. China’s pricing has now been in the marketplace for several years and there is little margin left for OEMs to push for further price reductions. Well, there’s always India and Western China. Will that be the next round of lower costs and lower prices?
  
  Note, after years of transferring manufacturing to China and after years of reducing manufacturing costs, the connector industry is less profitable today than it was 10 years ago, when the manufacturing exodus to China first began in earnest.

In 2006, for the first time in years, connector price erosion was reversed and connector companies were able to raise prices in the 3% to 5% range. First, prices were increased to electronic distributors and then to OEMs, as new contracts came up for negotiation. These price increases were justified by the explosive increase in raw material costs. Additionally, the strong demand for connectors in 2006 and decreasing lead times assisted in implementing price increases.

By the end of 2006, after much effort to hold prices steady, connector prices were flat or only had increases up to 2%.

We do not anticipate any further connector price increases in 2007. Demand will be less than 2006, lead times are again declining, and raw material prices are down slightly (but still at historical highs), and OEMs are beginning to increase pressure for price reductions. This, in our opinion, will hold prices steady throughout 2007.

The following analysis is from Bishop & Associates’ monthly survey of connector industry personnel on the subject of connector prices and lead times.

Price Analysis

The six-month price index for February is 3.125, up slightly from the January index of 3.038. This ended nine consecutive months of decline in the six-month price index. The index peaked in April 2006 at 3.586. This was when the first price increases were implemented by connector companies.

Industry personnel were asked, "In your opinion, what happened to connector prices in the past six months, and what will happen during the next six months?"

The results of the February 2007 survey are shown in the following table:

A price index above 3.000 means industry personnel believe prices have, or will, increase.

Methodology:  Increase a Lot = 5; Increase a Little = 4; Stay the Same = 3; Decline a Little = 2; Decline a Lot = 1

The following table displays the distribution of responses on the question of prices.

Lead Time Analysis

Industry personnel were asked, “In your opinion, are lead times increasing, staying the same, or decreasing now and in six months from now?”

The following table provides the survey results, including the distribution of responses:

Industry personnel put lead times at 5.1 weeks and predict they will be the same six months from now.