The Connector Manufacturers’ Perspective of Consumer Electronics
By Lynda Nolen, Bishop & Associates Inc.

Now that you have read the questions, comments, and concerns Bishop analyst John MacWilliams shared about consumer electronics’ relationship to the economy and the consumer electronics (CE) market in general; it would only be appropriate to address these and similar issues with connector manufacturers, particularly those who supply products to manufacturers of consumer electronic goods. How do connector manufacturers see the consumer electronics market shaking out? What do they think about some of the changes that have occurred in the consumer market over the last decade? Do connector manufacturers think this holiday season, as well as the first half of 2009, is going to be as bleak as some are predicting? In a discussion with two major interconnect manufacturers, it was interesting to note that not all companies hold the same concerns or view the consumer electronics market in the same way.

Many interconnect manufacturers are anticipating this holiday season more than in previous years. Will consumers continue to allocate a growing portion of their total spending to consumer electronics, or will they hold back on high-ticket purchases? Although many analysts predict that an economic slowdown will greatly affect the consumer electronics market, not all interconnect manufacturers agree that this will happen across all product categories. To understand what this means, Bishop spoke with two of the world’s top interconnect manufacturers, Molex and FCI. Although they both agree that the purchase of high-ticket consumer goods is tied to market conditions, they believe that the introduction of better and newer products will continue to drive worldwide demand for quality CE products, and the global manufacturer who can provide quality products to a global economy in a way that is totally invisible to the customer will come out ahead.

Brian Krause, vice president of marketing and communications for Molex, the second-largest interconnect manufacturer in the world, believes that this holiday season may be humbug for many manufacturers, but as far as consumer electronic spending goes, Molex feels the consumer electronics market will continue to grow and flourish, just maybe in different ways then we have seen in the last decade.

Mitsuru “Mitch” Terbayashi, global marketing director of  miniature product business line for FCI, the fourth-largest interconnect manufacturer in the world, still feels that substantial growth will be seen in certain areas of consumer electronics, particularly HDTV and Blue-ray. FCI predicts that expansion will continue through 2012 for major players who participate in the manufacturing of liquid crystal displays (LCD) and plasma display panels (PDP), particularly with the movement of broadcasting from analog to digital.

To understand why interconnect manufacturers like Molex and FCI feel the consumer market will continue to grow and flourish, you first have to understand how they classify consumer electronics. For companies like Molex, the term consumer electronics covers a broad spectrum of end products and specific markets within the consumer electronics market, all of which they participate in. There is the white goods market, which covers washing machines, refrigerators, air conditioners, microwave ovens, and ranges. There is the consumer communications and computer market, which includes cell phones, computers and computer peripherals. Finally, there is the consumer entertainment market, which offers televisions, gaming devices, and cameras. Although these markets all overlap, they also each have their own characteristics and geographic idiosyncrasies, and all are affected differently by economic market conditions.

For instance, if you examine the white goods market, you will see, unlike in other markets, that geographic presence plays a much larger role in shaping product types and preferences. As Krause explained, in North America it is not uncommon to have a large washer and dryer. The average American home is designed with a separate area just for doing your laundry. But go to China, a country with the greatest population in the world, and space is at such a premium that most Chinese families live in small apartments. In China, stacking or compact units are more prevalent.

The components used to build white goods are also region-specific. Although the use of RAST connectors has become more common in North America, it has still not taken off like it has in other regions, and having the ability to provide products that are unique and satisfy the current requirements of that particular region is important if a manufacturer wants to be successful. Geographic location, and how it affects getting the products to the consumer, also is different in the white goods market. Although in some sub-markets, products are easily built or assembled overseas, most consumer white goods are built in the regions in which they are to be sold. As Krause indicated, companies in the U.S. and Europe are presently entertaining bids on production of white goods in regions of the country where labor is cheaper. But unless the market makes it virtually impossible to manufacture where the consumer is located, transportation costs do not make it logical to manufacture a refrigerator in China that will be shipped by boat to Wisconsin, U.S.A. or Bern, Switzerland.

FCI also understands the importance geographic presence plays in the consumer electronics market. As Terbayashi explained, in the U.S., manufacturers like Intel have consumers looking at the personal computer as the center of the home digital network. Their goal is to link other consumer electronics to the personal computer. In parts of the world like Japan, where sales of PCs have already shown a decline, major Japanese PC manufacturers—who are also major manufacturers in the television, mobile phone, and consumer peripheral markets—believe television is the center of the home digital network. For the last 10 years, Japanese PC manufacturers have focused heavily on creating a strong home network between PC-TV and TV-PC, and it has become very popular with even North American computer companies like DELL offering models designed specifically for these types of applications.

When asked how Molex predicts an economic downturn will affect digital-enabled appliances, Molex agrees it will probably decrease demand. On the other hand, they feel that this is such a small portion of the market, albeit a growing segment, that it will not have as great of an effect as most think. Demand for mid-priced consumer products will continue. If the downturn continues, the consumer will be subject to pressure from the lending side. They will have to pay cash or get credit, and it is much easier to make payments on a $900 refrigerator than a $2,500 refrigerator. But will the consumer go without a refrigerator? Not likely. These scenarios don’t take into account the spread of wealth in developing markets, like China and India, where great disparities exist between those who have and those who don’t have. As consumers in developing regions acquire more disposable income, white goods, as well as other consumer electronic goods, will become more commonplace.

A similar opinion is voiced by FCI, who feels that in the developed world, decreases in consumer spending have been occurring very, very slowly over the last several years, and this decline could increase if the present financial crisis continues. FCI also feels that although developing countries will not be impacted as much at first, a worldwide financial crisis would eventually impact emerging markets, too.

Crossing from the white goods market into the consumer, communications, and computer market, Molex quickly acknowledges that developments in this market have definitely had a major affect on the other markets within consumer electronics. The same applies for the telecom, computer, and computer peripheral markets. Just look at the number of new products developed for cell phones and laptop computers, allowing Molex the opportunity to create exciting new applications for existing products.

A driving force behind many of the standards used in consumer electronics, Molex believes consumers want and expect standardization. In fact, Krause quickly points out two products specifically: the DisplayPort Interconnect System, defined by VESA standards, and HDMI, which is the digital link between consumer electronics equipment and audio/video montitors, both developed by Molex with the consumer in mind. Presently, Molex is a lead participant in over 40 different standard setting committees and groups, many as indicated below, geared heavily towards products found in the consumer electronics market. 

• IEEE1394—Desktop/laptop computers, DV camcorders, set-top boxes, DVD/audio components, and HDTV/DVCR

• HDMI—Digital TVs, plasma displays, set-top boxes, DVD players/recorders, audio/video receivers, high-definition monitors, D-VHS players

• USB—Cell phones, digital still/video cameras, PDAs, MP3 players

Like Molex, FCI is quick to point out that consumers expect standardization, particularly when it comes to connector interfaces, and like Molex, FCI is also a member of numerous standards organizations and groups, including USB and HDMI. When discussing FCI’s role in working with standards organizations on interface products, Terbayashi proudly points out one of FCI’s newest products, and how the development of this product is tied closely with products geared towards the consumer. The product, FCI’s iVDR connector is designed specifically to allow sharing of various content, including movies, music, and programs over a variety of devices, such as information appliances, home servers, video recorders, automobile AV devices, and PCs; and facilitates security, mobility, durability, and speed in these applications.

Are companies like FCI and Molex feeling increased pressure from consumer electronics, telecom, and computer peripheral manufacturers due to the digital convergence? Absolutely, says Molex’s Krause. Major companies that have previously served one market are now gaining entrance into other markets and drastically affecting pricing within these markets. Apple Computer is a great example. Here is a company that started by making computers. Now look at them: Not only do they continue to be a major player in the computer market, but they are now also a major player in the consumer entertainment and cell phone market, making it harder for companies like Nokia and Sony to maintain their market share. As for FCI, Terbayashi once again points out how companies like DELL are working diligently to connect the world of PC and TV. He also points out that in some countries, like Japan, what has allowed companies that originally entered the consumer electronics market as a PC manufacturer to maintain overall sales is their entrance into other markets, like cell phones and flat panel TVs. In order to convince consumers in a country like Japan that the PC is still a necessity, major PC manufacturers have introduced models that are selling below $300.

What about interconnects used in LCD displays? Does FCI or Molex anticipate their growth to continue at the rate previously experienced? As Krause pointed out, it is not just interconnects used in LCD displays that have experienced excellent growth, but also interconnects used in plasma displays. Both of these markets use I/O connectors, flexible printed circuit (FPC), wire-to-board, and board-to-board connectors. Here Molex does feel that continued high growth could be tied to economic conditions, indicating that this could be an area where consumers may hold off on purchases of larger units, creating an increase in demand for smaller units.

FCI, who is basing much of their opinion on what they are seeing in Japan, feels demand for LCDs and PDPs will continue to show double-digit growth, though probably not as significant as what has been seen in the past. These displays will not only be used in flat panel TVs, but also heavily in high-end cell phones, which in Japan is what more than 50 percent of the population uses for Internet and emails. Additional applications for LCDs include the mini notebook PC, which is being offered this fall by a variety of Japanese PC manufacturers in an effort to increase PC sales. Other products coming out of Japan, geared to keep the LCD market in double-digit growth, include improvements in LCD panels used outdoors by Japan’s Casio Computer Co. Ltd. Their new Blanview LCD is said to consume half the power of their existing models, yet provides about 30 percent increased transmittance.

Have we reached a saturation point in cell phones? Certainly many would say we have in some regions of the world, but although Molex may agree that demand for mid-range cell phones has lessened, they see demand for high-end phones increasing, creating additional pressure on manufacturers to develop faster, lighter, and more energy-efficient products. That is one of the reasons product development remains a major focus for Molex. Consumers, particularly those in North America and Europe, are acutely aware of how energy demand and prices affect the amount of disposable income available to the consumer. That is why, in addition to developing new products for the markets previously mentioned, Molex is also working strongly to provide new and innovative products for the alternate energy market. Basically it boils down to the more a consumer can save on products they feel are a necessity—like automobiles and home utilities—the more they will have available for discretionary items.

Terbayashi says that although market penetration is very high, FCI will continue to develop new interconnect products for cell phones and digital cameras. FCI will focus this development primarily on flexible flat cable (FFC)/FPC products and board-to-wire interfaces. He expands on the topic by elucidating FCI’s role in the development of 0.5mm pitch and higher pitch, such as 0.2mm, FFC/FPC connectors. FCI was one of the first companies to introduce FFC and FPC connector products, and he believes their core technology will allow them to continue to enhance their offering in this product area.

FCI is also investing heavily in the renewable energy area, particularly in wind and solar energy solutions through their FCI-Burndy products, the Electrical Division of FCI. This division, which not only develops and manufacturers connector products sold and distributed directly to utility companies and their contractors, also manufacturers and trains these companies and installers using installation tooling FCI-Burndy has developed. Capitalizing on this unique combination in North America, FCI-Burndy has established demonstration trucks that allow FCI-Burndy to go directly to the customer. This process has allowed FCI-Burndy to better serve the customer, and also allows the actual users of the connectors and tooling the opportunity to provide input to FCI-Burndy on potential product enhancements and new product requirements.

In essence, the electronics industry has been good to the consumer, and both Molex and FCI feel the consumer will continue to be good to the consumer electronics market. As Krause summed it up, the electronics industry has made the consumer electronics market fun and exciting. Products available to the consumer now do more, run faster, and have greater capacity than ever before, and although high-end consumer products can be costly, in many ways high-end consumer products have also made scheduling and balancing our lives easier, two things that even in an economic meltdown are going to be very hard to give up.

Lynda Nolen Product Specialist, Bishop & Associates Inc. Lynda Nolen has been in the interconnect industry for over 28 years. She has worked in sales, sales management, marketing, and product management for such companies as TRW Electronics Components Group, Sunbelt Components, Cinch Connectors, Arrow Electronics, PEI Genesis, and Delphi Interconnect. Nolen has extensive experience in competitive cross-referencing, drawing, web and catalog review, new product introduction programs, harness and connector assembly programs, account management, and customer service programs. Lynda received her Bachelor of Arts degree from Roger Williams University in Rhode Island in 1979, and has completed various electrical engineering courses.