2025 will be a slightly better year than 2024 for distribution, halfway through the year, it is apparent the growth will be uneven and tilted towards companies in the East.
Distributors’ book-to-bill ratios are finally beginning to perk up, improving globally with sentiments turning positive for the first time in the last couple of years. All the same, conditions remain challenging with a huge divide between sales performance in Western locations compared with the East where distributors can still expect solid year-over-year growth rates albeit pockmarked with lower gross profit margins. Industry executives nevertheless are welcoming the ongoing improvements their businesses are experiencing, contrasting these with the dour conditions they faced at the beginning of the last market downturn. Executives said they are hopeful that the steady improvements will continue through the rest of the year, setting the stage for a stronger performance in 2026. “Asia was the only region with year-on-year sales growth,” noted Phil Gallagher, president and CEO at Avnet, while discussing the company’s third quarter fiscal 2025 results with financial analysts. “Our demand creation wins increased as our field application engineers continue to find ways to create solutions for our customers even in these challenging markets.”
A deep dive into the market conditions points to lopsided performance between Asia, North America, and Europe. First quarter sales at WPG Holdings, for example, rose 37 percent year-over-year. By contrast, revenue at Avnet during the same calendar period declined about 6 percent sequentially and from the year-ago quarter. During the same period, Arrow Electronics’ sales fell approximately 2 percent, slightly above guidance but still reflecting continued challenges in the larger market. Arrow’s president and CEO Sean Kerins said the results better than expected with improvements in all geographical locations. “In our global components business, all three regions performed ahead of normal seasonal trends,” Kerins said, in a statement announcing the results. “Additionally, we saw sequential improvement in industrial markets, resilience in transportation, and solid IP&E results.”
Although the plunge into double-digit negative growth rates have ended in the Americas and Europe, the market has not fully turned into positive territory. As in the last several quarters, the culprits are easily identified. They include uneven orders, persistent uncertainties related to geopolitical squabbles among the global economic and political powers, elevated inventory levels and continuing efforts to cut component stocks across the market. Distributors also cited wariness about tariffs imposed off and on by the US government, which many expect to impact sales even as the effects have yet to really hit the market as at the end of the first half. Even so, the industry is already taking steps to counter any negative impacts that may arise from a hike in tariffs, according to Avnet’s Gallagher. “Our goal is to mitigate or minimize the tariffs, but we’re going to have to pass it through if we have to pay them,” he said.
Pivotal junction?
Analysts reviewing the market trend note that the electronics component distribution market in 2025 stands at a pivotal juncture. It is being shaped by strong supply chain momentum – most of these are still playing out – technological advancements, and geopolitical developments. While the industry faces flat growth in certain regions, emerging technologies like AI-driven procurement methodologies and regionalization strategies present new opportunities for distributors worldwide. Industry executives echo these sentiments, even as they shy away from commenting on geopolitical developments. “Regionalization of supply chains is accelerating. Companies are shifting toward localized manufacturing to mitigate risks and improve lead times,” said Arrow’s Kerins.
Distributors say they recognize that the sector is not immune to the dynamics of power-play between China and the United States. Due to the uncertainties, distributors must remain focused on the factors they can control and put in place strategies and plans to assist customers navigate the evolving conditions at the micro level, industry executives said. At Mouser Electronics, for instance, efforts to mitigate any negative impacts on the design chain remains the priority, according to Glenn Smith, president and CEO. “The demand for electronic components continues to evolve, and our focus remains on ensuring engineers and designers have access to the latest technologies with rapid delivery,” Smith said, in undated remarks ahead of the annual Electronics Distribution Show (EDS) in May.
Dubbed the EDS Leadership Summit 2025, the event brought together top executives from the electronics components distribution industry to discuss market trends, challenges, and opportunities. Attendees identified core challenges facing the industry, noting that the pace of developments impacting the market has accelerated in recent years. They focused on how the market demand has shifted in favor of artificial intelligence (AI) with components going into that market segment changing the mix of parts carried by many distributors. This is also altering the nature of relationships in the industry, according to Dan Norris, president of Norris and Associates, who in his EDS comments advised attendees to pace themselves to maximize networking and business opportunities. Demand for semiconductors from auto OEMs has shot up in recent years, observers said, adding that this is also driving increased interest in interconnects, passives, and electromechanical components.
Supply chain focus
Across the distribution landscape, the issues of demand-supply imbalances, inventory corrections and geopolitics remain the major subjects of interest. While companies try to concentrate on their bread-and-butter business of servicing design engineers, these activities are often negatively impacted by economic conditions outside of the industry’s control, observed Avnet’s Gallagher. The key challenge is that economic conditions are increasingly fluid nowadays, complicating the supply chain situation, he said. “Supply chains today are very complex and the current environment regarding tariffs is dynamic,” Gallagher observed. “We are experiencing one of the most challenging and uncertain times that I have witnessed in my 40-plus years in distribution.”
