Electronic Design
Slow Growth Ahead For Global Switch Market

Slow Growth Ahead For Global Switch Market

As manufacturing continues to lead the way out of the recession, industry watchers expect continued slow growth ahead for the global switch and relay markets.

As manufacturing continues to lead the economic recovery, industry watchers are confident that the global switch and relay markets are poised for continued growth—albeit at a slow pace. Because switches and relays are used in such a wide variety of end products, in everything from appliances to HVAC equipment to automobiles, their demand mirrors overall manufacturing trends and reflects the steady climb out of the recession manufacturing began to experience in late 2009.

Michael Schwert, president and founder of Cumulus Inc., a market research and consulting firm specializing in switches and relays, notes the close relationship between the Institute for Supply Management’s (ISM) Purchasing Manger’s Index (PMI) and the switch and relay markets, in particular. December’s PMI registered 53.9, a 1.2% increase over November and representing the 29th consecutive month of expansion in the U.S. manufacturing sector. A PMI above 50 indicates growth in manufacturing while a PMI below 50 indicates contraction. The PMI averaged 55.3 in 2011, with a high of 61.4 in February and a low of 50.6 in August.

Exports And Onshoring Drive Growth

Schwert points to strength in exports and the recent trend toward onshoring as key factors propelling growth in manufacturing and resulting in good news for North American makers and sellers of switches and relays. The low value of the dollar compared to other currencies drove growth in exports, especially to places such as China, where economic growth is slowing but still remains a strong export opportunity for the United States, Schwert says. The dollar has gained strength against the Euro recently, however, and fears of a European recession are putting a damper on the export market.

“We’re expecting that there’s going to be a recession in Europe this year. Some numbers came out the other day \\[saying\\] the German economy may already be in recession. That, of course, could affect our ability to export products to Europe,” Schwert said in an early January interview. “China is going to grow… 6 to 7% as opposed to the 10% it has been growing, so it’s still a good export market for us.”

Onshoring is another trend helping to boost the manufacturing economy here in North America. Higher wages and other rising costs in places such as China are making it less cost-effective for U.S. manufacturers to operate there. As a result, many are beginning to move their manufacturing operations back to the West—to places such as Mexico where labor is less expensive than it is in the United States and supply chain costs are more affordable for North American companies.

“\\[For North American manufacturers\\], the cost of having a supply chain that goes across the Pacific Ocean is pretty expensive—and there’s a lag time before the product is used by the customer,” Schwert said. “There are a lot of negatives to the length and the cost of the supply chain when it’s located in Asia. So a lot of \\[operations\\] are coming back here—not necessarily to the U.S., but to Mexico.”

Such factors are expected to fuel the ongoing recovery in manufacturing and had industry watchers taking an optimistic view coming into 2012.

“The December report on manufacturing is very encouraging,” said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/ MAPI, in analyzing the December PMI results in early January. “In the last 25 years, the ISM index averaged 52.4, and thus December’s 53.9 index is well above average. It showed advances in nearly all the major components, particularly in production, employment, and backlogs. The only negative aspect to the report is that imports improved faster than exports.”

“The first report on manufacturing activity for the month of December should ease fears that the economy is slipping back into recession,” Meckstroth added, “as a recession would show up first in manufacturing activity, and this is not the case. That said, we expect only a modest pace of growth in manufacturing production in 2012. Consumers are constrained by debt and this is restraining the pace of growth. Business equipment investment, oil country goods and equipment, and motor vehicles should be the growth drivers in 2012.”

The Role Of Switches

Recent data on the North American switch market reflects the trend toward slow growth. The Cumulus third-quarter 2011 report showed a 4% decline in overall North American switch sales compared to the previous year, with bookings off 8%. The market has been recovering from its significant downturn in 2009, however, rebounding 40% in 2010 and making steady gains ever since, Schwert said. North American relay sales were up 18% through the first half of 2011, according to Cumulus Inc. data.

Product innovation and technological progress may be having an effect as well, as manufacturers look for ways to advance their products to meet market demands. With relays, the ongoing trend is toward miniaturization, with an eye toward making them suitable for applications in handheld devices.

In the switch market, touchscreen technology is having a big impact, particularly on the human-machine interface side of the business. As more and more companies incorporate touchscreen functionality into appliances and other consumer goods, the need for traditional push-button switching is diminishing.

“That’s a real technological threat to push buttons and toggles that are \\[used in human-machine interface applications\\], particularly as people get more comfortable with touchscreens,” Schwert said, adding that the trend is less of a threat in power applications, where the goal is to switch on a more significant amount of voltage.

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