The US Government started the new year in a most unexpected way by bullishly declaring geopolitical and economic ambitions that challenged many of the conventional norms of the post WW2 era. Of more consequence to electronic components markets is its overt use of blunt financial coercion measures (trade tariffs) against other countries in an attempt to achieve its aims.
According to Adam Fletcher, Chairman of both the UK’s Electronics Components Supply Network (ecsn) and the International Distributors of Electronics Association (IDEA), whilst potentially damaging to the long-term credibility of the US Administration and by association US flagship organisations, the latest ‘Trumpisms’ will only have an indirect impact on UK/European electronic components markets, at least in the short term.
Indirect effects impact confidence
The immediate effect of the America’s draconian measures is causing widespread ‘FUD’ (fear, uncertainty, and doubt) that will yet again disrupt global economic growth. The post-COVID reluctance to make significant long-term commitments in the primary business sectors that impact the electronic components markets continues due to the uncertainty about the likely ROI (return on investment). It will take some time before investors accept the new US trade position and significant financial persuasion and/or ultra-compelling business opportunities will be needed before investment confidence is reestablished and ‘normal’ economic growth levels return. As a result, most non-US electronic components markets; automotive, cellular mobile phones & infrastructure and professional (industrial, medical, robotics, aerospace) are likely to remain effectively ‘stalled’ in 2026.
US expansionist foreign policy changes
There have been many column inches written in the press about the changes in US Foreign policy and the implications these changes could mean to other expansionist governments, particularly China. The fear is the ‘law of unintended consequences’ may come into play here and the US actions within its sphere of influence and beyond, may encourage China to do the same within its own, particularly with regard to Taiwan. There’s no doubting China’s ambitions with regard to the island but most informed commentators believe that aggression is unlikely any time soon because of the negative impact on the Chinese economy that would result from a disruption to the supply of key semiconductors the country relies on to support its domestic technology manufacturing organisations. If history proves them wrong, the effect on the global economy (and electronic components markets) would be financially disastrous, eclipsing even the COVID pandemic.
Unexpected growth – defence
For decades the US Government has maintained that many European governments had failed to invest appropriately in their domestic defence capabilities and their participation in NATO and have become complacent and over reliant on the US. Russia’s invasion of Ukraine, coupled with wider geopolitical instability and the current US Administration’s rapidly changing foreign policy, was an overdue ‘wake-up’ call. Many European countries are now making urgent and substantial investment in their military capabilities, which is in turn flowing down to national defence contractors and via their supply networks to the electronic components markets. Despite the welcome boost, defence remains a small ‘niche’ market sector that needs very specific components, but the increase in demand is driving out the manufacturing lead-times of military grade components to 30+ weeks, many of which are proprietary to US based manufacturers. European national defence contractors awarded huge long-term orders by their governments are struggling to cope with this unexpected and unplanned new demand and are investing heavily to upgrade their production capacity, but it’s not a short-term fix.
Surreal, unplanned growth
The only growth seen in the global electronic components supply network in 2025 and forecast to continue strongly into 2026 has been in the hyperscale computing market. The incredible demand from the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta, NVIDIA, and Tesla current market capitalisation $20.7 billion) to build-out AI-based infrastructure has driven exponential demand for the specific GPUs (Graphics Processing Units) predominantly supplied by NVIDIA and for large volumes of the high bandwidth memory chips manufactured by only three suppliers to unprecedented levels in the US and Asia. Many of the electronic components needed for hyperscale computing are effectively on ‘allocation’ because customer demand currently exceeds the components manufacturers’ ability to supply. That said, the market for high-bandwidth memory devices currently appears immune to the wider geopolitical risks and as a result, manufacturers of these parts are making unprecedented investments in their production capacity and are urgently changing the focus of their existing manufacturing capacity and product mix at the expense of less ‘exciting’ devices/markets, to satisfy this huge demand. Whilst other sectors of the global electronic component market have not had such a dramatic upturn, many manufacturers of passive, interconnect, power conversion, and cabling, have been and continue to be, beneficiaries of the increased investment in AI data centres.
If history is anything to go by, it’s almost certain that the current AI hardware revenue will be eclipsed in the future by increasing and more stable software revenue, such as we’ve seen in every electronics industry boom since the 1950s. Likewise, the AI ‘demand bubble’ will eventually ‘burst’ and could well trigger a global recession, possibly worse than the ‘Dot Com’ recession experienced at the turn of the century. Wouldn’t it be great if we knew exactly when these events were going to happen, but the timings are yet more ‘unknown, knowns’ that the electronic components supply network just has to contend with.
Extending lead times = more care needed
Manufacturers of electronic components and the authorised distributors that represent them would ideally like to have their customers provide them with rolling six- to nine-months order cover, linked to a reasonably accurate rolling 12 month forecast of their demand. In most cases, currently they’re getting neither, principally due to ongoing geopolitical instability. Components manufacturers are struggling to effectively utilise their existing assets, let alone find the money to invest in new manufacturing capacity. It’s unsurprising that the current situation is knocking on to seriously curtail new investment by component manufacturers and their authorised distributors, to the detriment of everyone in our industry.
Following an analysis of returns from ecsn member companies in the UK and Ireland and from IDEA members in Europe for 2024 and 2025, and the industry data available across the rest of the world, I used my attendance in many industry meetings and my media contributions throughout the second half of 2025, to highlight my concern that system integrators were failing to place sufficient new order cover on their suppliers and I lobbied for a modest uplift in order cover to mitigate extending lead-times. I like to think that my comments as an interested observer contributed to the market’s gradual realisation that action was needed, and to the significant improvement in the UK Book-to-Bill (B2B) ratio (an important industry metric that compares new orders to actual sales) that we saw throughout Q4’25. The year ended in December ’25 at 1.1:1, which is a healthy and sustainable long-term result. Sadly, I’m now worried that many customers in Europe are increasing order cover on their suppliers beyond what they actually need: The Nordic region, for example, reported a B2B of 1.27:1 in December ’25, which if replicated on a global scale would very likely artificially extend lead-times further and potentially exacerbate procurement problems in the component supply network.
I advise procurement professionals to continue to monitor components manufacturer lead times in the light of their organisations’ usage and likely future demand. Effectively managing their order cover by scheduling component deliveries – forwards (pull-ins) and backwards (push-outs) – will help ensure that their organisation benefits from future optimisation of the overall ‘inventory pipeline’. For their part, electronic components manufacturers and their authorised distributor partners need to offer maximum flexibility in customer order rescheduling. Additional care also needs to be taken by both the customer and supplier in cases where a single customer dominates the demand for a particular component. Risks should be fairly shared, and any changes proposed should not detrimentally impact one of the partners. In my experience the rescheduling across electronic components supply network, where some customers are pulling in and some are pushing out, generally results in an overall ‘net zero change’ balance to the overall inventory and risk.
Concluding thoughts – ‘business as usual in the new normal’
During the COVID crisis some five years ago inventory levels throughout the electronics industry reached unprecedented levels. A combination of customers greedily seeking to increase their in-house buffer stock and the long tail of historically slow-moving, grossly over-ordered parts held by many large customers. Over two years later than most analysts suggested, this excess is now being consumed – or is being scrapped – and it is thought that by 2H’26 stock will have returned close to ‘balance’, albeit at a level approximately 15% higher than in pre-COVID times.
I encourage all partners in the electronic components supply network to embrace the new ‘normal’ and actively and positively engage with their partners. A greater focus on forward planning probably won’t eliminate the risk of shortages of some components this year but it might help to avoid a repeat of the mass shortages the global electronic components market experienced in 2022/3. I continue to encourage ALL partners in the electronic components supply network to actively and positively interact with their partners to negotiate and agree successful outcomes for all. Continued successful collaboration throughout the electronic components supply network is essential if we’re to successfully mitigate the issues just around the corner and the others potentially looming just over the horizon.
About the author:
This article originally appeared in the March/April issue of Procurement Pro
