Electronic Connector industry - qualitative insights appreciated

[LongHaul]

I was looking at the electronic connector industry - TE Connectivity and Amphenol are the main public companies that I know of.

 

They seem to be small, engineered parts.

 

Are they generally commodities to the buyers?

Any idea why Amphenol does ~19% EBIT margins while TEL does far lower?

 

Thanks

 

 

 

[handycap5]

amphenol has better mix, more high-end usages where the connectors cannot fail so premium prices. TEL's consumer electronics business has held back margins, though their auto business is very strong.

 

bishop & associates does a very thorough review of industry if you can get your hands on one.

 

molex was bought by koch brothers as a recent and well informed comp.

 

it is a deflationary business, requires modest invested capital but huge headcounts, making it hard to manage. selling to sophisticated OEMs. the cost of the product is often minuscule compared to the cost of failure, which may provide pricing power at times. often "engineered in" to an OEM product. raw materials are important, including gold/copper, etc., pass-through may not match the letter of the contract.

 

but what do i know? good luck!

[LongHaul]

Great info.

 

APH does talk about their harsh environment leadership in the annual which corroborates your point.

 

What is odd though is that the Gross Margins for APH were 31.4% in 2013, TEL had 30.5% and Molex 29.4%. 

I would have thought the GM's for APH would be substantially higher then TEL and MOLEX if they were able to achieve premium prices. 

 

I am not fully sure why that is.

 

 

[handycap5]

very good - great question and focus on the numbers.

 

i don't know. might be allocation differences. might be the length of the product life cycle. amphenol seems to have a lot of niche products that they can milk for a long time without significant R&D. TEL may have to more often "pay upfront" to get business through fairly significant R&D spend, on products that have shorter life cycles.

 

TEL also may have sized itself differently. they are well short of their financial goals from a few years ago, electronics market generally has been softer than many expected over the last 5-6 years. also might reflect TEL's acquisitive history...

 

if it is none of those things, just blame it on kozlowski.

[jouni1]

i like TE's live voltage connectors a lot. much better than competitors' connectors that are available down here. i don't think amphenol offers a lot of stuff to the grid building industry.