Connector growth is possible - Wall Street Q1 Preview - and related article - Statistical Data Included

Electronic News, April 1, 2002 by Ronald Bishop

The world connector industry has just concluded the worst year in its history.

Over the past 21-year period (1981-2001), world demand for connectors declined just three times: in 1985, 1992 and 2001. Last year's decline was totally unexpected and ended eight consecutive years of growth.

What happened? The year 2000 was the best year in the connector industry, growing at 18.1 percent. It was followed by the worst year in industry history, with a decline of 19.1 percent. The size of the world connector market is back to 1999 levels, with 2001 nullifying the 2000 gains. The downturn began in November 2000 with sales growth slowing. By January 2001 new orders for connectors began dropping rapidly. And 2001 only got worse.

This year is looking a bit more positive. Industry bookings have picked up, with encouraging figures in January and February. However, the industry's new order rate is still significantly below that of last year. Connector sales (billings) are still significantly below 2001 levels. On a year-to-year basis, this January was down 31.8 percent and February was down 26.3 percent from last year. On a consecutive-month basis, January 2002 was down 5.5 percent from December 2001, and February was up 4.2 percent from January 2002.

For the first quarter of 2002, bookings will be down approximately 20 percent from last year. Billings will be down approximately 25 percent from last year. Combined bookings for January and February 2002 (from our 15 percent sample) are down 20.1 percent compared to the same two months in 2001. Billings are down an uncomfortable 29.2 percent.

It is important to remember that revenue in the first quarter of 2001 was up slightly over 2000 because of the healthy backlog the industry had coming out of the final quarter of 2000. As we move through 2002, year-to-year comparisons become more favorable.

First, it appears that we have bottomed. Second, connector demand in the third and fourth quarters of 2001 was very poor, setting a low benchmark for year-to-year comparisons. Therefore, as business gradually improves, we should start achieving year-to-year growth in the second half of 2002.

However, business is coming back slowly and there are no compelling electronic market drivers that suggest a V-shape recovery in connector demand. Therefore, our 2002 outlook is for a slow recovery that results in negative year-to-year comparisons in the first half of 2002 and more positive comparisons (growth) in the second half.

RELATED ARTICLE: Possible Market Inhibitors/Wildcards:

* Congress does not pass an economic stimulus package

* Commercial aircraft market fails to rebound because of less air travel

* The automotive market declines because 0% financing ends

* Consumer spending dips because of recent layoffs and declining confidence

* Continued regulatory uncertainty regarding competition in the local loop

* Another act of war against the United States

Market Drivers:

* Improved U.S. economy with GDP in the 2.0% to 2.5% range

* Depletion of inventories and production ramp up to meet new demand

* New applications and improved handsets in the mobile/wireless environment

* Pentium 4 and Windows XP upgrades for the PC market

* Low Interest rates

* Increased military spending

* Resumption of capital spending by ILECs

* Incentives for modernization of the local loop (broadband access)

Ronald Bishop is the principal of Bishop & Associates Inc., based in St. Charles, Ill.