PBUS@C-level: An Interview with Michael Knight, Corporate Senior Vice President of Strategy at TTI

Demand for electronics components has skyrocketed due, in part, to the data centers that support AI and other compute-heavy tasks. Supplies of components used in industrial control panels — memory, processors and even certain connectors — are being squeezed. But AI is not the only dynamic fueling expectations of a banner year for component sales. Moreover, this upcycle may be different than in previous years. Michael Knight, Corporate Senior Vice President of Strategy for TTI Inc., recently spoke with Panel Builder US contributing editor Barb Jorgensen about the other drivers behind this demand and the implications for the future structure of the electronics supply chain.

Barb Jorgensen: There’s a lot of buzz around data centers, which are primarily associated with powering AI. What else do you see in the industry that’s fueling demand?

Knight: This is much bigger than AI-related demand for compute, memory and storage, and then the hyperscaler demand for data centers. And the really interesting thing about this moment in time is there are other things that are moving exponentially in terms of demand, that in parallel with this whole AI thing is a structural change.  

Barb Jorgensen: How so?

Knight: [AI/data center] demand has a knock-on effect and puts a lot of pressure on these other things that I am going to talk about. In the last strong upcycle we had, one of the characteristics of it was virtually all market segments were growing very strongly. So automotive was growing, industrials growing, medical was growing, mil- aero was growing and consumer was growing. Because the supply chain was common across all those market segments, when the supply chain ran out of capacity, it had to figure out how [component makers] allocated what capacity they have.

 In the second half of this year, we are right back there because the supply chain’s going to be out of capacity. What’s going on right now is that last upcycle we had on steroids, right?  So, let me talk about some of the non-AI things that are blowing and going right now.

First and foremost is defense, so defense electronics.  It’s cranking up and is caused by a few things. One is the depletion of munitions, which is a fancy way of saying we’re firing off every rocket we can get our hands on lately. And you know, a lot of what our defense industry builds is not just for our own military use. We sell it, and other parts of the world have become hot zones, and the air is just full of missiles. And that stuff needs to get replenished. In fact, we’re depleting it faster than the replenishment cycle.

Which means [defense companies] are starting to see multi-year backlogs just in munitions. Add to that the European defense industrial complex got way behind — it’s very dependent on the U.S. and the current administration has changed the game for them, and we’re seeing really significant investments in building out [European] capability, so that’s soaking up a lot of parts.

Barb Jorgensen: There have been boom-bust cycles for as long as I can remember. What makes this different?

Knight: Demand exceeds the capacity that suppliers are willing to put in place. So, right now, the demand for military components is growing exponentially. It’s supported by a manufacturing infrastructure for components that is built on, thought about, acted upon in a linear fashion. Linear is, you know, basically up and to the right, but in a very logical progression. Exponential is more like liftoff. The second half of the exponential curve looks like a rocket taking off. So obviously, there’s a mismatch, and that is going to be the story in military electronics for the foreseeable future, until everybody buys into that this new level of demand is permanent. I don’t know if it is or not. But if you don’t buy it being permanent, then you are not going to permanently commit to a capex budget to keep up with it.

Barb Jorgensen: During the last upcycle, automotive companies were caught short on chips. Automotive companies –and defense — are sourcing more commercial-off-the-shelf parts, so they’re competing with consumer companies, etc. Do you think auto companies will be better prepared this time?

Knight: Though automotive is still kind of off its glory days, the electronic content has continued to increase year after year after year, at all levels of the vehicles that are being produced.

So, from an electronics standpoint, [TTI] saw growth in our automotive business last year, even though the automotive industry in total didn’t.   And we see a very strong book-to-bill ratio in automotive. We see lots of growth there because again, the content is going up, and though there is a lot of, negativity — people are talking about EVs and autonomous vehicles as a hype cycle. It’s not a hype cycle. Like a lot of things in electronics, initially, it feels like a hype cycle because it goes up fast and then it plateaus. And it may drop before getting to where it should be and then grow more steadily as it becomes mainstreamed.

So, I think in the next couple of years, what we’re going to see is autonomous vehicles get more ubiquitous. I mean, we’re seeing Waymo being rolled out to more and more cities.

And just as an aside, whenever I use ridesharing, I always ask the driver, ‘What do you think about driverless vehicles? Are you concerned that at some point, you’re going to be competing with a driverless vehicle?’ The answer always was ‘No way, never going to happen. Driving is a uniquely human thing. The streets are complicated.’

Technology could do all of this if you think about it. A human being is really not the ideal operating system for something that weighs two thousand pounds and is going sixty miles an hour, and especially when that human being is distracted by their phone and lack of sleep, and all the rest of it.

And where I’m going with all of this is, I think we’re in the early stages of the driverless or the autonomous vehicle. That whole shift that’s been talked about for ten years is finally starting to get traction, and most of that is electric. So that’s going to put a ton of pressure. on the automotive connector manufacturers, especially for high voltage. And that’s a lot of the same capability — tooling, etc. — that goes into supporting military connectors, you know, defense connectors. So, you start to see this kind of build. Then the other thing that’s to me is very clear that’s happening is the industrialization of space is a thing. And it’s we’re early on, and I think that is also going to ramp exponentially.

Editor’s note: In upcoming segments Knight discusses robots, structural vs. exponential change in the supply chain and how AI could enable a path toward a more frictionless system.