Semiconductor Market Outlook for 2025: Predictions and Trends to Monitor

The electronic components industry has had a tumultuous year of transition in its push toward recovery and stabilization. At the beginning of 2024, Edgewater Research offered a tentative outlook regarding the overall active and passive component market sectors. One of the biggest concerns at the beginning of the year was the remaining challenge of excess inventory, which still poses an issue for companies in 4Q24.

Edgewater Research’s initial analysis found that 2024 would be a transitional year for the market before shifting to stabilization and growth. Their research found that demand across the market would likely remain flat for most industries, especially those in consumer electronics, which saw some of the more significant drops as the world began reopening post-COVID-19 pandemic.  

Areas of growth were primarily found within artificial intelligence (AI), high-performance computing, automotive, aerospace, and defense markets. Demand has remained high in these areas, contributing to some bottlenecks and short-term shortages. Generative AI has been, and will continue to be, the trend-setter in the coming few years. Likewise, the debut of AI-enabled smartphones, PCs, and other devices will spark renewed interest among consumers, contributing to growth.  

However, this interest won’t be significant enough to draw the industry out of its slow recovery faster.

Weak Spot Market for Memory Components will Continue into 1H25  

DRAM and NAND Flash have seen the most fluctuations throughout the year. Due to AI applications, high-bandwidth memory (HBM) and enterprise solid-state drives (SSDs) have seen the most consistent demand. This has contributed to tremendous growth throughout the year, contributing to some bottlenecks and shortages.

In response, memory leaders SK Hynix, Samsung Electronics, and Micron Technology readjusted production capacity to focus on HBM. This also included undergoing testing to sell to specific clients, such as Samsung successfully passing Nvidia’s tests so Samsung’s HBM3E products could be used in Nvidia’s AI processors.  

Despite the success of some artificial intelligence-capable components over the years, growing concerns regarding the general DRAM and NAND flash market have persisted. The spot market for DRAM and NAND flash has been relatively flat due to excess inventory throughout the year. Within the last few months, the spot market has continued to fall despite holidays, including China’s National Day Golden Week, which usually spark renewed procurement.

TrendForce data showed that module houses were keen on keeping their inventory levels low due to sluggish transitions and buyers' unwillingness to raise their stock. Sales pressure has made several suppliers sell their products at lower unit prices, as many procurement teams are using excess inventory to fill any backlogs that arise. This has kept the market below its average selling price (ASP). Many expect this current situation to remain until 2025.

Likewise, industry analysts and research firms view the approaching year with optimism or overwhelming pessimism. Morgan Stanley’s research has placed it firmly within the latter side of the spectrum, with a “bearish view on Korean memory chipmakers.”  

Citing the weak demand for DRAM, Morgan Stanley analysts have expressed concerns regarding HBM’s heightened popularity. The firm projected that in 2024, “global HBM supply will hit 250 billion gigabits (Gb), far exceeding demand, estimated at 150 billion Gb—a surplus of 66.7%.”

Furthermore, Morgan Stanley predicts that general DRAM will peak in 4Q24 before initiating a multi-year decline through 2026. This decline will be fueled by weak demand and a massive oversupply courtesy of aggressive strategic expansions by Samsung Electronics and Changxin Memory Technologies (CXMT).  

Other industry players have grown concerned about CXMT’s decision to increase DRAM production capacity amid a weak market. Nomura Securities predicts that “if CXMT expands its DRAM production capacity as planned, it will account for 15% of the global DRAM market. In terms of production volume alone, it would become the world's fourth-largest DRAM manufacturer after Micron.”  

This could further exacerbate the already weak spot market, further driving down ASPs within DRAM and lending credence to Morgan Stanley’s oversupply theory. However, many industry experts disagree with Morgan Stanley’s “exceedingly pessimistic” report.

BusinessKorea states that experts argue that the HBM market is driven by customized and client-approved orders, which would make oversupply far less likely. Already, the production capacity of HBM for SK Hynix and Samsung Electronics is fully booked out. Similarly, Gartner sees HBM shipments increasing by 57% in 2025, another monumental increase after the explosive 265% growth in 2024.

Likewise, HBM, which would significantly contribute to a DRAM oversupply according to Morgan Stanley, has been mainly used in AI applications, which are expected to be in high demand over the next several years.

Lending further credence to this theory is the recent report by the management consulting firm Bain & Company, which warns of an AI shortage on the horizon.  

Artificial Intelligence Fueled Shortages May Appear if Demand Skyrockets

AI has been in high demand by organizations and tech giants alike since the debut of OpenAI’s ChatGPT, which propelled it into general focus. With the heightened interest in generative AI and large language models (LLMs), AI-capable components and processes have seen growing demand throughout the year.  

With the introduction of AI-enabled smartphones and PCs, the demand for AI is only expected to grow. Edgewater Research detailed that 2025 will mark the actual kick-off for AI PCs, and according to Statista and market analyst Canalys, AI laptops will quickly reach over 50% of global PC shipments within the next few years.  

In July, the IDC forecasted that generative AI smartphone shipments would grow 364% year-over-year in 2024, reaching 234.2 million units and growing 73.1% in 2025. The IDC continues, “By 2028, worldwide Gen AI smartphone shipments will reach 912 million units, resulting in a compound annual growth rate (CAGR) of 78.4% for 2023-2028.”

Marvell Technology is already planning to increase prices for their AI-related products during 1Q25. In a notice to customers, Marvell stated it would be raising prices across its entire product list due to market pressure for accelerated computing and unprecedented investments.  

These two consumer markets are only a portion of the growing demand for AI components across various markets. With the explosive growth rate AI technologies will see within the next few years, HBM, SSDs, graphics processing units (GPUs), advanced packaging, and other necessary components will be in great demand.  

Bain & Company reports that the growing demand for AI components has placed the industry at risk of another shortage. Anne Hoecker, Head of Bain’s Americas technology practice, warns that the ongoing high demand for GPUs and other components due to AI-enabled devices could lead to a shortage in semiconductor supply.  

“The increasing demand for GPUs has caused shortages in some segments of the semiconductor supply chain.” Hoecker points out that if demand continues to grow, “the onslaught of AI-enabled devices may accelerate PC refresh cycles and pose extreme widespread supply constraints for semiconductors.”

Bain & Company’s report noted that while it is difficult to forecast consumer reaction to new products, a demand rise exceeding 20% could “threaten the complexity of the supply chain.”

The report stated that the “supply and demand of semiconductors is a delicate balance, as the industry and its customers know all too well after the past few years. Although the pandemic-induced chip shortage has passed, executives are starting to prepare for the next potential crunch caused by (you guessed it) artificial intelligence.”

According to Scott Bickley, Research Practice Lead at Info-Tech Research Group, “the advanced semiconductor supply chain is the most fragile on the planet. Over 5,000 vendors must work in perfect harmony to produce the most advanced chips.”

“Many of these vendors,” he said, “supply a single component to a single company, without which the whole system comes screeching to a halt. The technical obstacles alone are mind-boggling, notwithstanding the geopolitical risks facing TSMC and the normal headwinds of logistics management.”

Additionally, Gartner notes that the lack of competition within the GPU market, with most of the demand being aimed at Nvidia, constraints will continue until more competition arises.  

Bain & Company reports that capital spending on data centers will only increase year-on-year by 36% in 2024 due to AI and accelerated computing. Should data center demand for current-generation GPUs double by 2026, suppliers must increase output by 30% or more. Rising geopolitical tensions and severe weather could further complicate this, impacting the fragile supply chain.

Geopolitics Will Continue to Shape the Supply Chain

In the last few years, semiconductors have been thrust into the spotlight of the ongoing trade war between the United States and China. The U.S. has prioritized limiting China’s access to advanced semiconductors and lithography manufacturing equipment and outright prohibiting the sale of specific AI-capable components, such as Nvidia’s GPUs. China has responded with its own restrictions, most notably on critical raw minerals used in producing semiconductors, such as gallium, germanium, and antimony.  

Every month, the U.S. and China announce new restrictions or expand the list of components that fall under sales bans. China’s recent restrictions on gold antimony have caused extreme concern among aerospace and defense organizations precisely due to their reliance on Chinese minerals. The trade war shows no signs of slowing, and a new administration in the U.S., whether it is Democrat or Republican-led, will likely further fuel tension.  

Depending on the future U.S. president, there could be a noticeable increase in restrictions that would make the relationship between the two countries more contentious. It should be noted that even if Democratic Party nominee Kamala Harris is elected, the Biden-Harris Administration kept most of the previous Trump Administration tariffs and even implemented new restrictions.  

Likewise, the ongoing Israel-Hamas conflict continues to spread discord within the Red Sea and Suez Canal, impacting logistics. Shipping companies have been taking alternate routes, mostly around Cape Good Hope in South Africa, if they don’t want to risk Houthi attacks on their cargo ships. The Suez Canal’s route accounts for 15% of global maritime trade volumes, which caused a seismic shift in shipping patterns in the 8 months after the attacks began.  

There were also noticeable drops in trade traveling through the Bab el-Mandeb Strait, which connects the Red Sea to the Arabian Sea through the Gulf of Aden. The most significant disruption has been to the oil industry, but the global impact of these disruptions has affected every sector, from semiconductors to fruits.  

The most significant shipping delays spurned by the Red Sea Crisis are related to shipments through Asian ports destined for Western Europe or the United States East Coast. Shipping routes from Asia to Germany saw a “55% increase in transit times, resulting in an average delay of 12 days.” For shipments from Asia to New York, there was an average of 11-day delays. For the semiconductor industry, which sees a fair amount of just-in-time (JIT) manufacturing, this severely impacted participating companies.  

Unfortunately, there is no end in sight for the foreseeable future. Lead times have stayed low due to flat consumer demand and the remaining challenges of excess inventory. However, if demand picks up, transport companies will begin feeling the pressure, and the added costs of rerouting around Cape Good Hope to avoid the Red Sea Crisis could further impact lead times and prices.  

The current dissatisfaction among port workers in the United States could exacerbate this. The threat of the East and Gulf Coast ports closing for an extended period when the International Longshoremen’s Association (ILA) began to strike concerned many. If the strike had only lasted a week, it would have taken four to six to achieve stabilization from backlogs incurred.  

The strike lasted only three days before a tentative agreement was reached, but it still caused some challenges and a daily loss of $5 billion. Pricing platform Xeneta said it would take “two to three weeks for the normal flow of goods to be re-established.”  

This tentative deal, however, has only tabled the strike for the time being. It is expected that talks regarding automation will resume in January, which could, if discussions break down, lead to another strike on the eve of the Lunar New Year, another global peak shipping season. If this one persists beyond three days, recovering from it could take a month or longer.  

That’s without adding the current damage the severe storms in Asia and Southeast U.S. have left.

Severe Weather is On the Rise

The world has been rocked by severe weather within the last few months, including typhoons, hurricanes, and climate challenges. 2023 was a record-breaking year for billion-dollar weather events or severe storms that surpassed over one billion in damages. 2024 has had many impactful natural disasters that could have upheaved the global semiconductor supply chain if facilities weren’t as lucky as they were.

2024 began with a 7.5 earthquake that struck Noto, Japan, killing hundreds and injuring over a thousand. The quake also left dozens of communities without power and some semiconductor plants out of commission, awaiting structural damage assessments for days. Several months later, another earthquake struck Taiwan, the global semiconductor fabrication and assembly leader.  

The Hualien earthquake again devastated and killed the affected areas. However, due to the earthquake occurring on the island’s less populated eastern side and the companies' strict quake preparedness, the global impact on the semiconductor industry was minimal. However, these disruptions could have had a more considerable impact if they had occurred closer together.

Like what is occurring now, Southeast Asian nations were rocked by the quick succession of typhoon Gaemi and super typhoon Yagi. Again, Taiwan’s foremost producer of semiconductors, TSMC, weathered the storm, but the same could not be said for most of the ports. With shipping congestion increasing from typhoon damage, hurricanes Helene and Milton in the U.S. only contributed to these issues.

Hurricane Helene posed a significant problem to the semiconductor industry because the Spruce Pine Mining facility fell within its path. The Spruce Pine Mine supplies most of the highly pure quality quartz used to fabricate silicon wafers. The two companies within the area, Sibelco, and Quartz Corp., did not report severe damage to their facilities or products due to the hurricane.  

However, the railways and roads, the main transportation methods out of the area, were significantly damaged. The rail lines could take several years to repair and fully return to road capacity. The extensive damage to the main transportation methods within the area could impact the operations within the Spruce Pine mine for some time, even into the following year.

Based on these impacts, the facilities will likely be operating at a reduced state, which could result in short-term shortages that impact the supply chain through 1H25. This assumes no other natural disasters occurring within or around Spruce Pine, further exacerbating the situation.  

These storms could have had a much more significant effect on the semiconductor supply chain during heightened market demand. Since the market has stayed flat over the year, companies have had time to recover without pushing for greater production capacity.  

In 2025, while recovery will still occur in the first half of the year, should demand begin to pick up, as Edgewater Research suspected in its initial assessment of the market outlook, the industry could see a fluctuation in heightened orders that strain the recovery incurred by the hurricanes and the port strike.  

Looking to the Future - What Will 2025 Bring to the Market?

The electronic components industry will continue to recover through the first quarter of 2025. Excess inventory has remained a challenge throughout the year despite buyers filling backlogs with existing surplus and suppliers engaging in strict production cuts. Seasonal demand has been lower than expected, as seen with China’s National Day Golden Week. Back-to-school shopping within the U.S. and Europe was also slower than expected, adding to lower-than-predicted sales.  

With the debut of AI smartphones and laptops, Edgewater Research forecasted the real sales boom would occur over 2025. This prediction will likely remain accurate as market demand has remained low over the last quarter. Similarly, excess inventory mitigation will temper new purchases of other components over the seasonal shopping periods.  

ASML has remarked that it is experiencing a market downturn and expects a slower, gradual recovery. However, it should be noted that due to restrictions on ASML’s equipment in China, which made up 29% of last year, caused sales to drop significantly. That has affected its market outlook, which may not apply to other industries.  

Altera, an Intel company, has also announced its decision to increase prices on its FPGA products due to market pressure and increased operational costs. This will result in a 7%, 10%, and 20% increase on specific product lines. These raises will be put into effect in mid-Q4 and remain in place over 1Q25.  

Concurrently, TSMC has surpassed quarterly expectations again, blowing previous estimations out of the water with 54% growth in Q3. This success was driven primarily by artificial intelligence, which comprises a mid-teens percentage of its yearly sales. The company expects this demand to remain high and “healthy” for at least five years. Other AI-associated chip suppliers, such as Nvidia, AMD, Broadcom, Intel, and Qualcomm, saw smaller but similar growth.

What does this mean for the 2025 semiconductor market? Here are a few things to consider for the following year.

• Shortages Inbound: Artificial intelligence and high-performance computing will continue to see high demand. However, production capacity could become strained due to geopolitical events, lack of competition, natural disasters, and the ongoing labor shortage.  

• Shifting Priorities by Fabs: AI and hyper-scale cloud computing will contribute to fabs' changing priorities and strategies, impacting certain component sourcing over the next few years.  

• Price Increases: Altera, ADI, and Marvell Technology have announced their decision to increase prices on FPGA and optical communication products respectively due to market pressure and the increased demand for accelerated computing by AI trends.

• Layoffs Leading to Instability: There is growing concern that large, franchised distributors could be laying off large numbers of tenured personnel, contributing to instability between supplier and buyer relationships.

• Economic Recovery: The global economy will see greater stabilization, contributing to a return to normal consumer spending habits. This will help digest the remaining excess stock and improve spot prices.  

• Industry Growth in Specific Sectors: With the proliferation of AI and high-performance computing, along with the global state of geopolitics, several industries are likely to benefit over 2025, including power grids, data centers, automotive, aerospace, defense, networking, and the Internet of Things (IoT).

• Legacy Components Will be Harder to Source: With the popularity of AI, prioritization of lucrative lines during the pandemic, and rising tensions between the U.S. and China, legacy components over 65nm will be more challenging to source. There will be a significant supply/demand imbalance coming for legacy parts. Mature nods, 28nm or higher, and advanced nods, lower than 11nm, will be easier to source as availability opens up with new fabs coming online.  

• Increased Instant Obsolescence: Many organizations may start cutting historical lines, contributing to cases of instance obsolescence, as layoffs occur. Today, 30% of all obsolete components enter obsolescence instantly, heightening the challenges of component unavailability.

Over the next quarter, it will be pertinent to watch the market for the possible impact these shifts could have on popular brands. The AI boom will likely contribute to increasing price trends and lead time delays for some components, especially with rising geopolitical tensions due to the U.S.-China trade war. To stay abreast of these shifts, here is a list of some of the most popular brands and their associated products that procurement teams should pay particular attention to.

Overall, 2025 will mark the change from a transitional market, what we saw during 2024, to true recovery and stabilization. Most of 1H25 will likely remain geared toward recovery with low spot market prices, specifically in memory, and continued excess inventory mitigation. Procurement teams will likely remain cautious throughout the year's first half for general components while AI, high-performance computing, and other sectors see strained availability.  

Take Proactive Action to Prepare for Sudden Market Shifts

The industry believes that the biggest challenge today is supply chain disruptions. While this is true, due to their abruptness, which occurs with little to no warning, market shifts can also contribute to sudden component unavailability or excess. Market trends are a risk to supply chain stabilization that can be mitigated if one knows how to prepare.  

Utilizing market intelligence tools that analyze historical trends and ongoing procurement shifts can help alert teams to upcoming bottlenecks or gluts. Combined with a global electronic components distributor that employs a team of industry experts who can help organizations source hard-to-find stock and sell unnecessary surplus, companies can mitigate problems if plans fall through.  

Sourceability’s digital tools, Datalynq and Sourcengine, the premier market intelligence tool for the electronic components industry and a global e-commerce platform for parts, combined with its talented team, can help your organization prepare for the worst and capitalize on opportunities. Due to the widespread variation in demand, 2025 will be an exciting year within the market alone.  

This is without considering the ongoing labor shortage, rising geopolitics, and increasing occurrences of natural disasters. In the days post-COVID-19 pandemic and the global semiconductor shortage, black swan events seem to readily occur yearly. We do not see one significant disruption but rather a group of small or moderate disruptions that compound into something much more challenging.

To make the most of 2025 while avoiding its challenges, you need to partner with a global distributor that offers digital tools to help you make informed decisions and a sales team to source your components. Contact our experts today to begin preparing to make the most of 2025.