Your Vehicle Knows a Lot and Wants to Share it
The automotive market is in the vanguard of this movement. Vehicles today sometime have tens or hundreds of sensors and, in the case of high-end automobiles, multiple microprocessors. Everything that used to be mechanically measured in vehicles are being transitioned to digital monitoring. Tires, speedometers, door and window operations, ignition, pedal controls, fluid pressure gauges, in-car infotainment systems, seat controls and most other gauges are coming alive even in entry-level vehicles. Within the next decade, most mechanics would probably need retraining just to understand vehicle operations and maintenance as a result of the infusion of electronics-based controls.
Other industry segments are going through equally massively disruptive changes. Home lighting manufacturers are adding wireless capabilities to their products with basic options for remote control via PCs and smartphones. Smart meters allow utilities to monitor and advice consumers on electricity, gas and water usage patterns in addition to enabling remote shut-off for delinquent customers. Refrigerators routinely inform home owners when to change water filters and, in security services, traditional vendors like ADT are being challenged by telecom and cable TV service providers that are also encroaching into each other’s turfs.
Outside the home, a plethora of devices are empowering service providers, local governments, security services and industries with information about how their products are being used and remote repairs. Sensors make it easier to better direct vehicles, reduce road bottlenecks and take snapshots of traffic offenders for easier prosecution. The consumer is at the center of all these services and the proliferation of electronics in daily lives is only bound to accelerate.
There are significant implications for all segments of the electronics industry. Many companies have and continue to make huge profits in the consumer electronics market but others are finding the going extremely tough. Components manufacturers serving the consumer sector, for instance, are experiencing severe margin pressures and are diversifying into less price sensitive areas, including aviation, medical and industrial.
Connector manufacturer Amphenol Inc. plays in all segments of the electronics industry but the company also tries to maintain a strong presence in areas where it believes margin pressures are less intense, such as aviation. It makes strategic acquisitions to bolster offerings that are proprietary or for which customers are willing to pay premium pricing because they are critical components. In October, for instance, Amphenol agreed to acquire U.K. and Estonia-based Ionix Aerospace Systems to gain its “harsh-environment interconnect assemblies for the commercial aerospace market,” according to Adam Norwitt, president and CEO of the company.
A breakdown of Amphenol’s latest quarter results by end-markets and the growth rate of each sector from the prior year period indicates why the company is going after specialized applications even as it maintains a firm toehold in consumer applications. In the September quarter, military accounted for 12 percent of Amphenol’s sales (down 3 percent); commercial aerospace 6 percent (up 27 percent); industrial 14 percent (up 9 percent); automotive 12 percent (up 25 percent); mobile devices 18 percent (down 14 percent); mobile networks 10 percent (down slightly); information technology and data communications 20 percent (up 7 percent) and; broadband 8 percent (up 24 percent).
“We continue to see tremendous opportunities for our company as a result of the ongoing revolution in electronics, and I remain very confident in the ability of our outstanding management team to continue to capitalize on these opportunities, both to grow our market position and expand our profitability and, ultimately, to thereby drive the continued superior performance for Amphenol,” said Norwitt during a presentation to analysts.
While companies like Amphenol must extend their products through all segments of the electronics market, other players in the industry are being more selective in choosing who, how and where they serve customers. EMS providers especially are re-examining their roles in the supply chain and, in many cases, diversifying away from the consumer electronics sector or even dropping this completely due to its high price sensitivity. Unable to offer much in terms of higher-level, and therefore better margin, offerings, small and mid-tier EMS providers are in cases simply leaving the consumer segment to larger players like Taiwan’s Foxconn.
After being burned in data and networking equipment market when long-term customer Juniper Networks ended their relationship, Plexus Corp., for example, wants to deepen its engagement with OEMs in market segments such as healthcare and life sciences “that have longer product lifecycles, place greater value in our engineering solutions business, require greater regulatory compliance and as a consequence are generally stickier enduring relationships,” according to Dean Foate, chairman, president and CEO of the Neenah, Wis.-based contract manufacturer.
This is not limited to small and medium companies in the sector. Even top-tier contract manufacturers like Flextronics International Ltd. are quickly changing their product mix to reduce volatility, which is prevalent in the consumer electronics industry. The Singapore-based company has expanded aggressively into the medical equipment market via organic growth and through acquisitions and is looking to increase offerings to OEMs in what it calls “industrial and emerging industries.”
“In line with the past several years, we will continue to focus our M&A activities on markets and technologies that realize longer product life cycles, less volatility and higher margins,” said Michael McNamara, CEO of Flextronics during the company’s last conference call with analysts. “Our recent Riwisa acquisition, which is closing this quarter, is a great example of this as it increases our exposure to more predictable, sustainable higher-margin businesses.”