Kitron constantly monitors the electronics manufacturing industry to stay ahead of the market and remain competitive. We use this knowledge to provide our customers with the latest information, updates and insights into the near future to support and enhance their decision-making process and strategic planning.
Situation in the semiconductor industry
Despite the weak economy in Europe, the global semiconductor industry grew by around 19% this year.
The growth is being driven by a continued surge in AI-related semiconductor demand and recovery in electronic production. The majority of the growth comes from some specific component types, such as memories and logic ICs.
There is also a difference in geographical demand. America and the APAC region are showing resilience and growth, particularly driven by AI and data processing segments. China is strengthening its self-reliance and showing significant gains despite geopolitical tensions. At the same time, Europe has been facing challenges with weak demand, especially in Germany, which has a weak Automotive market, a high inventory level, and limited recovery signals.
Global semiconductor revenue is rebounding and is expected to record double-digit growth in 2024 and 2025.
Correction of inventory in the supply chain
The correction of inventory in the global supply chain has continued during the entire of 2024.
Lead times are now on low pre-pandemic levels. At the same time, the semiconductor market is growing this year and, most likely, in the years to come. Growth is unbalanced, which makes the future a bit vaguer.
Inventory in the supply chain keeps lead times low, and order visibility short. Manufacturers are facing layoffs and reduced capacity, and this creates a risk as it will take time to ramp up again when more capacity is needed.
History shows that lead times may increase overnight, so we need to be prepared for when the demand turns back up. One of the best ways to protect yourself against this is to ensure that your Bill of Materials (BOM) doesn't have single-sourced components. Having alternatives makes you less sensitive to sudden lead-time fluctuations.
NCNR development
The NCNR (Not Cancellable/Not Returnable) numbers remain above pre-pandemic levels, unlike lead times.
NCNR agreements require a firm commitment to purchase agreed quantities, even if demand changes. While not ideal, NCNR agreements have turned into a strategic tool for manufacturers to manage financial risks when expanding production capacity, ensuring their investments are supported by committed orders.
Kitron works closely with suppliers to update NCNR statuses monthly and is dedicated to reducing these agreements further. Progress is being made, but we are still far from pre-crisis levels.
To manage NCNRs effectively, firm orders, not forecasts, are essential. Suppliers will not act without orders. It’s important to note that NCNR agreements apply not only to semiconductors but also to other component categories.
Pricing overview
With some exceptions, the market is stabilizing, and prices will continue to go down if the situation remains stable.
Since October 1st this year, China has intensified restrictions on foreign companies, particularly semiconductor manufacturers, making it harder to acquire rare earths and other minerals. China has a dominant position as the leading producer of refined rare earth materials; they have about 70% of the global supply.
Exporters must now provide detailed explanations of how these metals will be used in Western supply chains. With growing demand for rare earths in applications like electric vehicles and renewable energy, prices might increase.
Kitron always investigates what parts are affected by any new restrictions that come our way—to keep our customers informed to mitigate the risks.
Outlook
Next year, the global semiconductor market is forecasted to grow by around 13%, with some exceptions.
Lead times are at good levels, but there is a clear risk of steep lead-time jumps when the stock levels are depleted.
While Europe’s economy remains sluggish, faster recovery in other regions could shape the component market. Given Europe’s small share of the global semiconductor market, a global perspective is essential.
Recommendations for 2025
To effectively position yourself for 2025, we recommend prioritizing placing orders with sufficient lead time. While forecasting future demand can be challenging—particularly if you still have an existing inventory—this does not diminish the importance of proactive planning. Ensuring adequate order horizons remains critical for navigating potential market uncertainties.
Secondly, we strongly encourage extending your forecasts to an 18-month horizon. While forecasts may not carry the same weight as firm orders, they can significantly enhance your ability to respond effectively to unforeseen developments.
If committing to long-term orders for the full BOM is not feasible, we recommend prioritizing orders for your most critical and single-source components. This approach allows you to safeguard your supply chain against potential disruptions while minimizing risks.
Lastly, and consistently emphasized throughout the component crisis, we strongly recommend prioritizing the approval of alternative parts wherever possible. Additionally, consider designing and redesigning for availability to ensure multiple sourcing options. This strategy not only maximizes your chances of securing supply but also positions you for potential cost reductions over time.
