Specialist distributors expect another strong year for sales

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James Carbone – Contributing Editor

Component demand remains healthy, prices are increasing and some component lead times are still long.

Specialist electronics distributors are cautiously optimistic that strong component demand will continue through the year and sales growth will rise to high single-digit or double-digit levels this year.

Some specialist distributors express concern that electronics buyers scheduled orders last year for 2022 because of long lead times for crucial semiconductors and other components and that purchase orders would weaken this year. But lead times are still long for many parts and buyers may end up scheduling orders for 2023 later this year.

Greg Peloquin, executive vice president of power at Richardson Electronics Ltd, said in April that lead times for chips are mixed. “Some have improved but some have continued to extend. Overall it seems lead-times are consistently 24-36 weeks with some still in the 52 week+ range,” he said.

He said Richardson has been working closely with its RF and power management technology partners to manage lead times to support customers. Demand for RF and power management chips this year is as robust as last year, he said. The satellite communications and 5G business segments are actually stronger than last year, according to Peloquin.

“It is amazing the revenue and booking records we have had in the last couple of years in the middle of the pandemic,” he said. “Our sales will be up over 60 per cent with a book-to-bill of 1.49 in the first nine months of our fiscal year,” said Peloquin.

He added that demand for 5G infrastructure and green energy applications, the two main markets and applications that Richardson focuses on, “are extremely strong and we do not see any slowdown in 2022,” said Peloquin.

Strong demand may be contributing to higher prices along with increases in material, fuel and transportation costs. “With all the issues now, the overall cost to make the product and then get it to the customer has increased,” Peloquin noted.

He said Richardson’s RF technology partners have increased capacity, which is helping keep lead times “at bay or improving them slightly.” However, a lot of capacity being added “seems to be taken up by the automotive guys,” said Peloquin.

Joel Levine, president of RFMW, a specialist RF and microwave distributor, said the distributor had 25 per cent sales growth in 2021 with strong demand from the defense, space, 5G and industrial segments.  

Some buyers hesitate
He said business so far in 2022 has been healthy but some “customers in certain segments are taking a bit of a wait-and-see attitude before they place large new orders.” Some customers last year may have already bought enough parts to be “safe” and now may be hesitant to place orders for components with long lead times.

“We can’t tell if people have been building their inventories,” said Levine. However, with lead times being long many “smart customers scheduled things out in the middle last year” to make sure they had enough parts for 2022,” he said.

Levine said prices for chips increased last year but in the first quarter of 2022, price increases seem to have slowed. “But it is still early in the year and suppliers seem to have a price increase cadence now,” he said.

“It feels that certain suppliers are increasing prices every quarter,” said Levine. “I’m not saying they always do but they are watching their pricing very carefully.”

Levine said he was “cautiously optimistic” for low double-digit sales growth in 2022. “As of now demand is steady. Time will tell regarding the effects that the macro economy and global disruptions will bring,” he said. Levin added if the supply chains hold up, “it’s going to be a really strong year. It’s not impossible to see double-digit growth for this year,” he said.  

Robust connector demand
Connector specialist distributors also say that interconnect demand so far in 2022 remained as strong as last year. “Demand has been robust across all sectors of our business owing in part to rebounding markets such as commercial aerospace and energy,” said Ernie Schilling Jr., president and CEO of Powell Electronics. In addition, there has been “pent up demand due to supply chain delays or aggressive ordering in anticipation of looming price increases,” he said.

He said some connector brands have had longer lead times due to “planning and inventory models adopted by those companies. Those with robust raw material inventories have fared well. Those with just in time, price-driven supply chains with minimal raw material inventories have had the hardest time delivering,” he said.

Connector prices continue to rise. Connectors have had “consistent price increases” quarterly or monthly depending on the raw materials and those parts, said Schilling. However, supply chain issues with connectors have not been as acute as the issues facing semiconductor manufacturers.
He said in the connector industry there has been “quite a bit of manufacturing movement from region to region to match customer base consumption or seek out lower cost structures,” said Schilling. However, there has not been a lot of capacity increases.

Connector shipments rise
Schilling said there should be healthy growth this year. There should be a low-single digit increase in bookings this year but shipments will likely remain in the high single digits by year’s end.

Certain market segments and applications will help drive connector demand over the next several years. “Stressful times, and environments always seem to inspire innovation and new technology leaps,” said Schilling. “We see lots of hot flash points of innovation in medical, consumer, space and sensing devices,” he said.

John Hufnagle, vice president, North American sales and engineered solutions at PEI-Genesis, said that business has rebounded since Covid disrupted the electronics industry in 2020. Connector demand has been healthy across all customer segments, he said.
“We currently have a record backlog. Connector demand in our product portfolio has remained steady for the last 6 – 9 months,” said Hufnagle. He noted that there are “pockets of customers” who over ordered last fall due to supply chain issues. Now demand is steady.”

Connector tags increase
He said there are a select number of product families that have long lead times, but “we don’t see any real extreme changes” with lead times. However, connector prices have increased. The amount and number of price increases vary supplier to supplier and product family to product family. There were many price increases last year and the price hikes are continuing so far in 2022, said Hufnagle.

“In some instances, we have seen multiple increases over the course of the last year and there may be further increases as we traverse the year,” he said. “These are some very different and challenging times we are navigating.” In many cases price increases range from 3 to 7 per cent.

Hufnagle noted that PEI-Genesis’s business is impacted by materials cost increases because PEI-Genesis is a value-added distributor. PEI- Genesis buys component parts to build finished connectors. There are different insert materials, finishes and shell materials, most of which have been impacted in the raw materials market in some way, he said.

“We may receive an increase on one component of a connector that has a huge impact on the part as a finished good,” said Hufnagle.

Besides the rising material costs, connector manufacturers face other challenges, including staffing and logistics. “Those challenges do not at this time look to be changing for the better very rapidly,” said Hufnagle.

Wayne Nelson, general manager at Benchmark Connector, said due to some material shortages and cost and transportation issues, lead times are going to increase for the foreseeable future. He added there have been more price increases this year “Every supplier has increased prices in 2022 and more are likely,” he said.

Despite raw materials, logistics and staffing issues, Hufnagel expects healthy high single-digit growth in the connector business in 2022.