Solid Connector Growth in First Half,
But Demand is Slowing
By Ronald E. Bishop, Bishop & Associates Inc.

World connector sales were $12,051 million in 2Q11, up 10% over 1Q10. Through the first six months of 2011, world connector sales were $23,403 million, up +10.3% over the first half of 2010.

The following table shows connector sales by quarter. 

World Connector Sales

                                         $ in Millions

Growth of +10.3% in the first half is excellent performance, especially considering the industry just finished its best year ever, growing +28.4% in 2010. However, orders in the first half were up only +4.3%, meaning we are seeing an eroding order backlog.

Big Three Performance
The following table shows sales performance for the three largest connector companies in the first half of 2011.

Big 3 First Half Sales

Percentage Change Year-Over-Year

  Note: TE data shows organic growth, without ADC acquisition or the effect of currency fluctuations.

The following graph displays sales performance since 1Q08 for the connector industry and sales performance for the three largest connector companies.

Quarterly Sales Performance
Year-Over-Year Percentage Change

The industry has achieved growth for seven consecutive quarters beginning in 4Q09. However, the industry growth rate has declined in the last five quarters. TE and Molex have also experienced five consecutive quarters of lower year-over-year increases in sales growth, with 2Q11 up only single digits (TE = 5%; Molex = 7.8%). Amphenol has also experienced a declining sales growth rate in the past three quarters, but still achieved double-digit growth in 2Q11 (15%).

Second Half Outlook
All three companies have lowered expectations in calendar 3Q11. The following table shows the third quarter sales outlook for TE, Molex, and Amphenol.

Big 3 Third Quarter Outlook
Year-Over-Year Change in Sales
 
Note: TE data shows organic growth.

If world connector sales were flat in the second half, on a year-over-year comparison, we would end 2Q11 with full-year industry growth of 4.9%. If we achieved a modest 5% year-over-year growth in the second half, the industry would achieve full-year growth of 7.5%.

The Bishop full-year forecast is for 8.5% growth in 2011. Considering that orders are up only 4.3% in the first half of 2011, and taking note of the slowing U.S. GPD, debt problems in Greece and other European countries, the disaster-related problems in Japan, and the cooling off of China, our forecast is probably optimistic. Assuming no radical change in world economies, we believe it is more reasonable to plan on full-year 2011 growth in the 5% to 7% range. The third quarter of 2011 will most likely be flat to slightly down, but if we have a strong 4Q11, sales results for the full year could be better than growth of 5% to 7%.

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