New Year Holds Promise for Electronics Industry Worldwide

The electronics market has faced its fair share of challenges in recent years. We've gone from product shortages on critical components, resulting in record-breaking lead times, to excess inventories that are taking multiple years to absorb. Manufacturers have struggled with slim margins and slow or negative growth rates. But as we look toward 2025, there's finally a reason to feel optimistic.

For one, the uncertainty that came with the election season is behind us. Uncertainty around which administration will lead us forward causes companies to hit pause on their capital spending. Now, we can start focusing on the market realities ahead, rather than worrying about what might or might not happen.

The past few years have been marked by uncertainty, especially as we navigated the tail end of the pandemic. In 2022, semiconductor lead times averaged between 40 and 52 weeks, with some passives well exceeding a year. That boom led to the 2023 bust, and since then, market researchers and economists have been searching for signs of a turnaround without much success! But I believe we've finally hit the bottom of the cycle, and I'm optimistic that 2025 will bring a return to growth, with 2026 potentially breaking sales records in the semiconductor industry.

As part of our strategy to support this growth, Flip Electronics is expanding its operations into the EMEA region, where OEMs in aerospace, medical, automotive, and industrial sectors face the challenge of shrinking component lifespans. Our presence will help OEMs overcome this issue by providing access to obsolete and end-of-life semiconductors and electronic components, sourced directly from factories, to extend product lifecycles.

This year, growth has been modest at best, but next year, we're anticipating about ten percent growth, and this trend should continue upward. This projection excludes the artificial lift provided by A.I.-related memory and processors, which are selling rapidly and driving market growth. Analysts expect growth in this sector to exceed by over 15 percent year over year, further fueling expansion. Meanwhile, legacy markets, such as industrial, aerospace, defense, and medical sectors, are expected to hold steady and may see some growth, though not as quickly as the general market or A.I. sector. We've heard positive comments and seen improvements in earnings reports from public companies. Our own sales have been rising month over month, and we expect that trend to continue.

Interest rates continue to decline, with the Federal Reserve lowering them by another 0.25 percent in early November. This drop is expected to stimulate capital spending in industrial and related markets, benefiting the electronics distribution sector as industrial manufacturers ramp up their investments. At the same time, we may see mixed results in mergers and acquisitions. While lower interest rates could encourage deal-making, the Federal Trade Commission's heightened scrutiny has slowed some activity, with major deals even being withdrawn due to regulatory challenges.

Meanwhile, the U.S. is poised for significant growth in the semiconductor market over the next decade. According to the Semiconductor Industry Association (SIA), domestic semiconductor manufacturing capacity is projected to triple between 2022 and 2032, largely due to the CHIPS and Science Act. This 203 percent increase will make the U.S. a global leader, a substantial jump compared to just an 11 percent increase over the past decade.

The SIA also predicts that by 2032, the U.S. will control 28 percent of global advanced logic manufacturing, up from zero percent in 2022. America is also projected to capture 28 percent of total global capital expenditures from 2024 to 2032, second only to Taiwan. Without the CHIPS Act, the U.S. share would have been just 9 percent. This growth is likely to continue, with the U.S. focusing on protecting jobs and industries through tariffs. With the ongoing talent shortage in the electronics industry, it's crucial that manufacturers, distributors, and industry associations work with educational institutions to build a skilled workforce.

Asia is also likely to experience double-digit growth, though the impact of potential tariffs remains unclear. Business has been picking up in the region, and before tariffs potentially increase costs, some companies may ramp up purchases to get ahead. China is continuing to invest heavily in its electronics industry and aims to become a global leader.

In contrast, Europe may see a flatter year in 2025. The region's growth is largely tied to communications infrastructure demand. This has slowed down companies like Nokia and Ericsson, as there's more installed 5G capacity than demand. I expect Europe to be the laggard in this cycle.

As the electronics market heats up, success will depend on how organizations have used the slower times to plan and invest. We've made significant inventory investments to position ourselves for the expected rise in demand. Resilience and responsiveness will be crucial. The industrial market is set to invest capital in automation, creating new opportunities. We also anticipate growth in the aerospace and defense sectors, driven by replenishment and investment in goods due to ongoing geopolitical conflicts.

Overall, while some uncertainties remain, the outlook for 2025 is filled with promise. I'm genuinely optimistic about the opportunities and growth it may bring.

To read the article on Supply Chain Connect, click here (Pg. 27): https://creative.endeavorb2b.com/ClientMarketing/Security%20%26%20Vending/eBook%20Distribution%20Outlook%202025_final.pdf?oly_id=%25%250.2.110%25%25