Following a booming 2022, things are beginning to feel different in the electronics supply chain. We are now entering a period of slower growth and are beginning to see a rebalancing of inventory across the market.
Years after the COVID-19 pandemic upended the market for electronic components, we’re still seeing uneven recovery across industries, component types, and geographic regions. The environment remains delicate, but it is showing some easing of supply constraints alongside a softening of demand in some industries. As we look ahead, here is what we expect from the market in 2023.
We’ll see a return to a normalized marketplace
As supply chains correct, demand will continue downward from the previous high point of Quarter 2 in 2022 and more normal cyclical drops in demand will emerge. Consumer and consumer-related areas will account for the most significant drops in demand. In contrast, rapid technological advances and newly approved government funding for domestic fab construction and defense industries will increase demand or, at the very least, help the following industries weather the softening market:
- Industrial Sector
- Semiconductor Fabrication
- Automotive/EV
- Energy/Energy Storage
- 5G
- Internet of Things (IoT)
- Data Centers
- Defense/Aerospace Sectors
Open market pricing will soften by as much as 30%
As supply chain conditions normalize, thereby reducing the acuity of shortages, pricing is expected to drop. The anticipated decrease, however, follows an all-time high of Quarter 2 of 2022, so some end users will still experience elevated pricing relative to before the shortage market.
The complete picture of supply availability will remain murky
Supply availability will be uneven and forecasting lead times will be tough. Certain high-profile segments, such as automotive/EV and semiconductor manufacturing, will see some relief from recent supply constraints. Lower profile customer segments and product classes will still struggle to find parts. Regardless of tier, the general landscape of product availability will look different than the historical linear distribution model, who gains access to available supply will be multivariate, dependent on a number of factors including need, leverage, location, supplier relationships, and price.
Customers increasingly value supply chain diversity
A new matrix is emerging wherein customers are taking more control over their supply chain. Historically, they have outsourced supply chain management to electronic manufacturing service (EMS) companies or contract manufacturers. In doing so, they have become disconnected from their direct supply chain. Going forward it seems that they will favor a hybrid approach to supply management and procurement. It is likely they will utilize supply chain models that combine direct, legacy distribution, as well as open market distributors.
The Internet of Things (IoT) will be a strong driver of demand as practical applications are applied
As more equipment and devices are connected to the internet, there will be a sizable increase in demand for both electromechanical and electronic components. Processors, sensors, on-chip and off-chip memory types, and various I/O and interface IP will underpin the increase in product digitization and growing market for in-field repairs. This sector, and ones that support it, will see high growth potential but less defined supply-demand linkages, resulting in supply chain constraint environments.
Although we are settling into a new “normal,” there are various political, economic, and social factors that could impact both supply and demand this year. The ongoing impacts of inflation, a global labor shortage, geopolitical conflicts, and a limited supply of raw production materials could all put downward pressure on an already delicate market. However, because of the world’s growing reliance on electronic components, alongside new funding sources for expanded production, there is reason to believe the outlook for the industry will be solid this year.
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