The COVID-19 era is one of the most severe black swan events that the connector industry has experienced, with factory shutdowns, inventory buildup, and drastic changes in market sales activities. The impact on the global supply chain has been enormous Now, more than three years have passed since the outbreak of the pandemic, and although the impact has gradually stabilized, it has not fully recovered. Relevant indicators are sending warning signals about the industry's condition, but at the same time, these signals are also being mitigated by some positive factors.
According to the research in the first quarter of 2023 (1Q23), the sales volume decreased by-0. 1% compared with the same period of last year. Although it is basically the same as in the past, it is still a signal to be reckoned with for the connector industry, because 1Q23 ended the sales growth achieved by the industry for 10 consecutive quarters. It is worth noting that seven of the past 10 quarters have achieved double-digit sales growth.
Figure1: Percentage change of industry sales (year-on-year) in each quarter
In addition to the downward trend in sales, orders are also declining. The connector industry has seen a year-on-year decline in order volume in 11 of the past 12 months, and the decline has been in double digits in the past six months. In addition, the order-to-shipment ratio has been lower than 1.0 for 10 consecutive months.
Figure2: Order-to-shipment ratio of connector industry
May 2022 was the last month when orders exceeded sales, and since then bookings have dropped by $4.1 billion, and no customers have cancelled orders or delayed delivery dates. These are not the only indicators that indicate that we are entering a downward business cycle. During the same period, Semiconductor performance of the industry also confirms this point.
Historically, semiconductor sales have led connector sales by several months. The following figure shows the relationship between semiconductor sales and connector sales in the past 17 months. Semiconductor sales fell for seven consecutive months, falling below double digits in four of those months.
Figure3: Comparing Monthly Sales Performance with the Same Period Last Year
Another obvious sign that the connector industry has entered a downward business cycle is science and technology company's announcement of layoffs. According to relevant sources, nearly 200,000 layoffs have been announced in 2023, while the number of layoffs in 2022 is more than 160,000. Some large American technology companies, including 3M, Meta, Dell, Boeing, IBM, Google and Microsoft, are laying off employees. Based on these signs, the downward business cycle facing the connector industry has been basically certain, but how long this cycle will last is another difficult question.
Although orders have dropped by double digits, sales have not yet seen this situation. The two largest connector manufacturers TE Connectivity and Amphenol also performed well. The two companies achieved sales growth in the first quarter of 2023 (TE = 3.8%; Amphenol 0.7%), and both predicted a slow decline in sales in the second quarter. (TE-2.4% and Amphenol-1.0%).
In addition, factors such as the $22 billion connector backlog unaffected by order cancellations or rollouts and the suspension of expected interest rate hikes indicate that the industry may not see double-digit sales declines. So the sales are more likely to be flat in 2023 than in 2022. Bishop's forecast is more optimistic, with an estimated growth rate of +1.9%. But that growth will vary across all regions or markets, with automotive and military markets expected to outperform other sectors, while computers and peripherals, Mobile phone and other data equipment industries, as well as consumer electronics market is expected to decline.
The order-to-shipment ratio has continuously fallen below 1.0. The connector industry may enter the downward business cycle-China Haihai Semiconductor (exportsemi.com)
