Tough Time to be an Independent Innovator
By Bob Hult, Bishop & Associates Inc.

It has never been easy for an independent interconnect designer to get much attention from the established connector industry. The state of the current economy has not improved the situation much either. Although new product development has always been a key aspect of the industry, advances in connector technology have largely been an evolutionary process, characterized by a continuing series of improvements in materials, design, and manufacturing processes. The basic physics of a separable interface have been well documented over many years, allowing limited potential for groundbreaking changes.

To a large degree, suppliers respond to the evolving performance and packaging requirements of their customers. Equipment manufacturers are often reluctant to increase risk by utilizing unproven technology if existing interfaces meet their requirements. For many years, conservative connector users would add a soldering step to a crimped contact to insure the reliability of the interface. The fact that it took nearly 10 years for the industry to fully accept compliant pin termination to a printed circuit board reflects the resistance many OEMs exhibit toward any significant change to a proven process.

On the other hand, original equipment manufacturers (OEMs) continue to demand more from their connector suppliers. Connectors that feature greater power density, high-speed bandwidth, environmental resistance, durability, higher pin counts, and greater density are required to support next-generation equipment. The connector industry has been responding with a flood of new products that address these needs. The continuing proliferation of new interconnect families is remarkable given the pressure being created by the current market. A few of the factors the connector industry faces today include:

1. Raw material costs, as well as operating expenses, are increasing. The cost of goods sold has risen from 69.8 percent of sales in 2007, to 77.1 percent in fourth quarter 2008.

2. Plummeting sales have prompted connector suppliers to adjust their workforce, resulting in a loss of experienced human resources. The current mantra appears to be short-term pain to insure long-term survival.

3. The steep drop-off in business and continuing uncertainty of the future has made capacity and production planning difficult.

4. The ability to develop and introduce next-generation interfaces has become an indicator of which connector suppliers are considered industry leaders—or followers.

5. Committing major resources to the development and tooling of a new product is always a gamble, but in the current climate, it is unclear if customers will go ahead with a new product or put the project on the shelf until business improves. We are currently in uncharted waters, putting even greater emphasis in return on investment as soon as possible.

6. Responding to the proliferation of global environmental mandates requires extensive research and documentation, adding cost to the bottom line.

7. The broad adoption of industry standards has made some interfaces commodity products, with a huge supplier base, often in Asia, and driving profit out for all suppliers.

8. A recent poll by Bishop & Associates indicated that a majority of customers are anticipating reduced connector prices.

In spite of these challenges, leading connector manufacturers continue to invest major resources in new product development, especially in the areas of high-speed backplane, mezzanine, I/O, subminiature, and power. The number of new products announced over the past year has been astounding. Conversations with development engineering and product managers of several major suppliers indicate that they have seen no reduction in activity, and that a continuous stream of new products will be announced over the coming year. One product manager noted that their difficulty is prioritizing the funding of development projects currently in the pipeline. One connector manufacturer noted that although they are not hiring now, they anticipate that they will soon be taking advantage of “downsized” engineering talent that has recently entered the available labor market.

Against this backdrop, independent connector engineers continue to find it difficult to gain interest within the established connector community. Introducing innovation from the outside has never been an easy path, with very few success stories.

The typical independent interface developer has worked within the industry, but for a variety of reasons is now applying the experience gained as a private individual. In some cases, they may have formed a small company or LLC, but some are lone inventors. Their business model also varies. In some cases, they are looking for a financial angel to fund the company, with the eventual objective of selling the company and its intellectual property via an initial public offering (IPO). They may seek investment capital from sources that range from venture capital organizations to their personal funds. The current economic meltdown has severely limited the availability of venture capital sources. More commonly, inventors are seeking to license or sell their intellectual property to an established connector supplier. This approach is problematic for a number of reasons. 

1. Connector manufacturers maintain their own development and engineering staffs, and expect them to be the source of new products. A certain amount of NIH factor may also be involved.

2. An entrepreneur may require a non-disclosure agreement before their concept can be exposed. This is a real problem, as the connector manufacturer may be working internally on a similar concept, and does not want that effort to be constrained.

3. The independent inventor may perceive a need, but it may represent only a very narrow market potential, insufficient to justify the expense of tooling. Large connector manufacturers often have extensive sales and marketing departments that are in direct contact with a wide range of customers. This allows them to collect input from a variety of sources to determine the total potential market.

4. Major connector suppliers generally want to maintain control of their intellectual property (IP). Hobbling a new product with a license or royalty limits the connector manufacturers’ ability to adjust pricing or capability to improve the product in the future. Contaminated IP has been a source of unanticipated problems as a supplier tries to have an interconnect defined by an industry standard. If that connector utilizes licensed IP, it may not be possible to extend that license to others.

5. Independent developers are not constrained by traditional or groupthink solutions, and often come up with product concepts that are totally unique. They may require new materials or manufacturing processes that may not be resident within a major connector manufacturer.

6. In some cases, independent inventors may be focused on solving a problem that may arise well into the future. At least one independent inventor expressed satisfaction that a concept he addressed 10 years ago is now being recognized by the industry. Providing a solution to an unrecognized need is hard to sell.

7. A lone inventor often does not have the resources to thoroughly document the performance of his or her new concept. A lack of adequate funding may preclude the establishment of proper patent protection, the development of detailed test data to substantiate advantages, or the creation of a professional presentation of the concept. In some cases, independent engineers have become so enamored with their technology that they fail to see why the advantages of their idea are not immediately evident to potential licensees, and they think the product should sell itself.

In those rare cases where a designer is given the opportunity to present a concept to a major connector supplier, the project may still ultimately fail. Getting an opportunity to present a new concept to a potential licensee or partner is a key step forward, but meeting the performance expectations over a protracted evaluation period is the real challenge.

Recognizing the difficulty in getting access to decision makers within the connector industry, some entrepreneurs have chosen alternative approaches. In several instances, inventors have attempted to promote their concept directly to a major OEM. If adopted, the OEM would have sufficient clout to drive their connector supplier to tool the interface. This may make sense, but we are not aware of a success using this approach to date.

Another approach that has been more successful has been to demonstrate how an innovation can be used to enable or enhance an existing product manufactured by a connector company. This is more of a partnering relationship, and offers the advantage of having no IP implications for either company. In a successful example of this model, a developer of a unique contact design sells a component to the connector company, which incorporates it into a finished assembly. The small supplier gains immediate revenue while exposing the technology to the broad market. Adoption of this technology by an established industry leader lends credibility to the technology. The connector supplier is able to offer a superior final product without incurring the costs of developing the technology internally.

Another innovator has been able to generate enough interest in a unique interconnect system to remain independent. They manufacture and sell their product to a niche market of users who require the specific features that their interconnect offers.

Going it alone brings its own set of challenges. For example, a custom software developer that optimized the design of high-speed circuits lost focus on their original business plan. Initial success caused management to expand too quickly beyond their limited capabilities, resulting in diluted resources. The CEO is now trying to reorganize the company.

At the other end of the spectrum, more than one independent designer has suffered years of futile effort and personal bankruptcy in an attempt to find a receptive ear.

The connector industry depends on the continuous development of new innovative products, but the adoption of new technology acquired from sources outside of established companies continues to present significant barriers to independent inventors.

Bishop & Associates Comments:

• The connector industry is a highly competitive market in the best of times, in the current global meltdown, life is getting brutal, especially for independent designers.

• Innovation in new interface development has been a key element in the connector industry, but it is predominately the result of internal product development resources.

• The current economic climate has made investment in new product development an even more critical and problematic challenge. It is unclear how customers are responding to the industry cutbacks.

• Independent entrepreneurs have adopted a variety of methods in an effort to penetrate the connector industry, with limited success.

• It is unclear if major connector consumers will commit to bleeding edge technology that requires next-generation connectors.

• Independent interconnect technology developers are facing difficult odds of success in finding acceptance, and many are scrambling to maintain sufficient funding to continue their efforts.

Robert Hult
Director of Product Technology, Bishop & Associates, Inc.
Robert Hult has been in the connector industry for more than 36 years. Hult began his career as a sales engineer for Amphenol. He joined AMP in 1972 and served in several management positions through 1996. In 1997, Hult joined Foxconn as group marketing manager for Intel in Chandler, Arizona, USA. Prior to joining Bishop & Associates, Hult was the regional application engineering manager for Tyco Electronics.

Hult graduated in 1968 from Bradley University with a Bachelor of Science degree in electronics technology and a minor in business.