Optimism reigns for electronics in 2025

For at least eight quarters, pundits and market watchers have been trying to call the bottom of the dip for the electronics industry, without success. In the fourth quarter of 2024, though, we've finally hit the bottom of the cycle for the industry at large. Signs are pointing to a return to growth in the coming year and a blockbuster year in 2026.  

In 2025, we should reach low double-digit growth, in the 10 percent range, but things are going to continue to improve over time. That estimation leaves artificial intelligence (AI) memory and GPUs out of the equation since sales in that sector have a very narrow set of players and have been on fire all year. Including AI chip sales would skew component sales for the general market. Meanwhile, the legacy space has been steadier since the customers it serves, primarily industrial, aerospace, defense, and medical, for example, are less volatile. General sales activity is rising as demand picks up and manufacturers work through their inventory. We've seen month-over-month sales rise, and our various partners have reported this both in earnings reports and in general conversation. 

The election has created economic uncertainty for the market. However, the market will relax as we get that behind us—whichever way the race goes. Generally, uncertainty always slows things down. Once the general outcome is known, manufactures can start to contend with it.

On a positive note, the downward trend in interest rates will loosen up Capital Expense spending in the industrial market as well as some other key markets. As those concerns alleviate at the tail end of the year, you'll see industrial companies starting to open the purse strings a little bit more, which is beneficial for the distribution community that serves that industry segment most heavily.

Geographically, the Americas and Asia will be leading the growth charge in 2025. We anticipate strong double-digit growth for both. Despite talk of tariffs, China will continue to double down on its investments in the electronics industry and its intention to be a leader in the space. Europe, meanwhile, will likely experience a flatter year in 2025. They have been burdened with a market that is following the demand for communications infrastructure. Absorbing the installed capacity of 5G communication infrastructure will take time—and 6G is still on the horizon. Currently, there is more installed capacity for 5G than there is demand. That makes me believe that Europe will be the laggard in this cycle. 

As the market gets more robust, it's going to be important to take the right actions to prepare. We at Flip have made significant inventory investments, for example, so that we are well-positioned to respond as demand rises. The industrial market will be a strong opportunity as organizations start to renew their CapEx investments for industrial automation. We also expect solid growth in the aerospace and defense arenas. The business result of the geopolitical conflict that we are seeing currently is replenishment and investment in these types of equipment.

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