While the global electronic components market seems to have worked off the unnecessary excess inventory and is expected to enter a typical growth cycle during 2025, the same cannot be said for the European market, and in particular for Italy, which is still strangled by the excess inventory held by many large companies that expect to need at least another 3-4 years before they are able to work off current demand and production levels and therefore before they can think about placing new orders. This is according to Alessandro Nardo, sales manager of Electronic Partner, an independent distributor with a 22-year track record. “Tight budgets have mainly affected active components, which have always been the most difficult to source and most sensitive to long lead times,” he says.
The US may be optimistic about 2025 thanks to recovering consumer demand, but 2025 is likely to be full of uncertainty for the rest of the world, both due to existing geopolitical tensions and labour shortages, as well as the expected "unexpected" flip-flops on US trade and tariff policy by the newly inaugurated US President Trump.
The first Trump administration initiated the US-China trade war, imposing tariffs on thousands of products from major US trading partners worth nearly $380 billion in 2018-2019, according to the US-based Tax Foundation. It summarised the various tariff proposals from Trump’s 2024 presidential campaign as follows:
Whereas the impact on US consumers and the US economy is significant, the impact on the rest of the world and global supply chains is more likely to come from retaliation by US trading partners. In Trump’s first term, China began implementing retaliatory measures and has increased them in response to both the Biden and Trump tariffs, including a 50% tariff on semiconductors and a 25% tariff on printed circuit boards, as well as export restrictions on critical minerals needed for electronics manufacturing.
In addition to the resulting cost increases for buyers, the tariff war is also disrupting supply chains as companies seek alternative trade routes to mitigate the impact. The timing of the tariffs is also increasing uncertainty for procurement teams, leading to likely delays and inventory challenges. Companies have to reassess their supply chain strategies and explore alternative manufacturing or sourcing locations to reduce the impact of tariffs on their production lines.
In Italy in particular, the consequence of this general conjuncture is that there are no certain forecasts. According to Nardo, everyone is overly cautious, and it is not clear how this will affect the market. We have customers who are laying off staff because they have a lot of finished products that they cannot sell, and other customers who are forced to hire staff and work on Saturdays because their customers order their consumption for 3-4 months at a time, asking for the material immediately, but then disappear without a budget.
Nardo says that from a purchasing point of view, this means that there are orders and potential orders for products that are in short supply, which are “without logic”, in other words, they are the result of the dynamics described above, which are hidden within the companies and lead to requests that appear out of nowhere.
He adds, “On the other hand, difficulties are beginning to emerge in the procurement of goods, as component manufacturers begin cutting back on production lines in the face of low orders, and convert production lines to higher-margin lines, such as those for AI, electronic vehicles,5G, etc.”
Product obsolescence as a result of shifting business priorities is becoming more instant, also due to the growing rate of mergers between chipmakers, shrinking component lifespans, limited production capacity and rapid technological innovation. This frequently leaves customers without the option of a last-time buy (LTB) and therefore no chance to stock up on necessary components. This scenario, while easily overcome in the consumer electronics sector where products can quickly be redesigned without expensive recertification requirements, is a serious problem for high-reliability sectors that have to face lengthy and costly recertification requirements and pre-market approval processes, such as in healthcare, automotive, aerospace, and defence.
Nardo explains, “We currently go from situations where there seems to be a high level of product availability in the official distributor catalogues to situations where all that is wiped out and the customer is again faced with a 20-week lead time.
"This is actually not the 20-week lead time we found before Covid, but a 20-week lead time for pseudo-stock, i.e. a purely indicative lead time, because the semiconductor manufacturers do not know when they will reactivate certain production lines given the continued low demand. In short, the market is really in turmoil.”
“On the supply side, large companies and large EMSes are experiencing a financial crisis due to the current market situation and are therefore having to reduce their inventories. Those who hear about these sales find that they disappear like snow in the sun, incredibly fast, because customers currently only move at the last moment, and if and when they find a good price they do not hesitate to take advantage,” he says.
“Here we must mention the issue of special prices, never seen before, currently available on the gray market,” he says, “where all the problems of counterfeiting can be found and therefore the greatest care must be taken. However, this so-called gray market is not so gray if the source of the materials is known, which is currently the case, because these special-priced materials come from management customers or from the unauthorized “official” market, since they are released by the large EMSes, which in turn receive their materials directly from the original producers.”
In concluding, he advises, “Global conditions combined with generally weak or very frenetic but pointless demand in Italy are creating another perfect storm for Italian and European manufacturers, which is likely to occur at some undefined point in the future: the longer it takes to unfold, the greater the risk that it will be violent and very similar to the post-Covid situation. Procurement teams are therefore advised to start planning now for alternative solutions.”
Article originally published in Italian in the print edition of Elettronica AV.
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