MarketEye: North American Relay Market Down Under Heavy Price Pressure and Switch Market Cools

09.11.2006 // Posted by: Michael Schwert // Posted in: Articles, Switches & Relays

Introduction

In 2005 the North American relay market showed steady improvement through the year. This changed in 2006 as price pressure decreased the total value of the market.

The North American switch market had a record quarter in the first quarter. Four of eight switch types shipped and booked more dollars and units than any previous quarter measured by Switch Tacks. Sales dollars finished 13% and bookings 16% ahead of last quarter. The second quarter looks like it has finished comparable to Q1, but recent surveys show a slow down may occur in the second half of the year.

Overall Relay Sales and Booking Trends

Sales for the total North American relay market show a steady growth in sales dollars and units through last year and reaching a peak in the fourth quarter. Sales dollars fell off quickly after the start of this year to levels below any quarter of 2005. Sales units moved lower, but not as quickly as dollars, to settle at a point just below the first quarter of last year. Bookings dollars moved in the opposite direction of sales through the third quarter of last year while booked units tracked with sales units for the entire year. Booked dollars jumped dramatically in Q4 of last year then declined the first two periods of this year, but remain at a higher level than sales. Booked units moved contrary to dollars to set a quarterly high in Q1 of this year than slipped a bit in Q2. This led to a significant decline in booking price for the first half of this year.

Overall Relay Market Price Trends

For the period charted below, the average selling price (ASP) was at its high in the first quarter of 2005. After a six-point drop in last year’s second quarter, the ASP inched up in the next two periods then fell to a low point in Q1 of this year. The ASP was able regain the majority of its loss and came back a few points below the 100 mark in Q2 of this year. The average booking price (ABP) made the same directional moves as the ASP did during 2005; however, the amplitude of its moves were much greater than sales. During the first quarter of this year the ABP made a precipitous 20-point plunge from its high point in Q4. The ABP slid a bit more during Q2 and will probably pull ASP’s south during the second half of this year.

Performance by Relay Type

The two basic relay types that this market information represents are electromechanical (EMR) and solid state (SSR) rated up to 30 amperes. Reported sales dollars and units for the first half of this year decreased for EMRs and increased for SSRs compared to the same period last year. Average selling prices went down about 3% for both relay types. Reported booking dollars and units increased for both relay types when compared to first half of last year. The ABP for SSRs increased while EMR pricing fell.

July Shows Weakening Continues for Switches

Each month Cumulus surveys people in the switch industry (manufacturers, distributors, and independent sales representatives) concerning current sales and bookings levels, as well as, current and expected business conditions. The results for July show measures continue to soften from highs early in the first quarter of this year.

A negative index appeared for the first time since April 2005 as shipments in July were felt to be declining compared to June. The July survey compared to June shows softer results in four of six measures. A slightly stronger outcome registered for shipments in July versus a year ago and expected business conditions for the first quarter of next year.

Switch Market Conditions Summary

The economy seems to be slowing and recent data supports this. The second quarter GDP growth was revised up to 2.9% versus 5% plus in Q1. The ISM report on manufacturing came in at 54.5, down 0.2 points from July. Top performing industries included electrical equipment, appliances & components; fabricated metal products; miscellaneous manufacturing; chemical products; computer & electronic products; primary metals; food, beverage & tobacco products; furniture & related products; and paper products

Consumer spending has held up despite higher energy prices. Some say this is due to strengthening wages or perhaps it shows up as rising consumer debt. Increases in capital spending appear to be good in the tech, chemical, and machine tool industries. But there are doubts that capital spending increases will be as large and wide spread as expected, at least in the United States, as manufacturers continue to invest in low cost manufacturing regions. Also many corporations have decided to use their cash surpluses to buy back their stock versus reinvest in physical assets.

Improvement in new orders or bookings versus the previous month continues to descend from its high in January. Bookings compared to last year have a similar trend at a bit higher level.

Sales compared to the last month went negative for the first time in nearly two years. Shipments compared to a year ago held steady and is the strongest of any metric shown here.

The measure of current business conditions continues its downward trend that began in January.  Expectations for the future held after recovering slightly from its major move downward in May.

Potential Positive Effects on the Switch Market

General economic conditions, such as lower oil prices were mentioned as possible areas leading to improved capital and consumer spending. Additionally, ongoing military action has increased. Reduced material raw material and transportation cost, firming of price increases on switch products and the recovery of profit margins would be good news. Increased industry consolidation that reduces the number of switch manufacturers would also have a positive effect on the switch market.

Potential Negative Effects on the Switch Market

As in previous months, energy and more specifically oil prices leading to a lack of consumer spending/confidence and a weakening general economic condition was the most cited negative to the switch market. Increasing raw materials cost in a very competitive market is weighting on margins. Lower cost manufacturers continue to pressure prices downward.

Share this: