Front End | Electronic Components Supply Network
Why are electronic components rising in price?
It’s mixed news for readers of CIE but all the indications are that over the next decade the likely direction of travel of average selling prices (ASP) of all electronic components is UP! According to Adam Fletcher, chairman of the UK’s Electronic Components Supply Network (ecsn) and the International Distributors of Electronics Association (IDEA), the step change in the electronic components supply industry that started in the 1990s with offshoring, continues thirty years later with increased innovation and changing patterns of international trade, not to mention addressing the supply chain weaknesses that the COVID emergency exposed. “We are entering what will probably be at least a decade of economic re-structuring as we migrate from a laissez- faire (free market, minimal interference) economy towards a more ‘managed’
market economy,” Fletcher says, “and it’s going to impact most individuals and organisations.”
Changing trade patterns A slightly positive result of the COVID pandemic was that it highlighted to governments in the west that the technology sector and particularly semiconductor manufacturing, was over-reliant on a few large organisations and had become much too focused and polarised in Asia. It also highlighted the dominant position that some organisations – alongside their supply chain partners – held over the entire industry and global economy, making them a target for inclusion in the US administration’s ‘change’ agenda. Whilst the leading technology companies had already taken small steps towards manufacturing outside of their home nations, they remained reluctant to make significant investments. Citing heightened concerns about political and military threats to supply and technology from China, the US government increased both commercial and political pressure to force a change!
America first
Over the last two years the US administration has torn up the established world order on international trade by the imposition of swinging tariffs on imported goods in its bid to ‘incentivise’ manufacturers to re-shore their activities back to the USA. This is nothing new: Pat Buchanan at the time a special consultant to U.S. presidents Nixon, Ford and Regan laid out his “doctrine of disengagement”. Buchanan’s declared belief was that the US should not be ‘the head of
12 September 2026
the free world’, a role that he maintained had been prohibitively expensive and only resulted in weakening the US economy and its people. Buchanan’s mantra “America First, Second and Third…” was described by many economists as a strategy of isolation and at the time, largely disregarded as not being politically expedient. Now the worm has turned, and Buchanan’s doctrine has been adopted wholesale by the current US administration and is the basis of its ‘America First’ strategy, a key part of which is the encouragement of greater inward investment in the country’s manufacturing sector. It’s claimed to have met with great success with Asian technologists making the largest commitments. Despite the concerns of international governments, both allies and enemies, the America First strategy looks likely to prevail, regardless of the political doctrines of subsequent US administrations. Such is the influence of the largest global economy that it’s now almost inevitable that other governments and countries will try to emulate the actions of the US administration. Europe is already aligning its trade policy to provide increased financial support to develop existing local semiconductor manufacturing organisations and attract new entrants. For its part the UK government has given vocal support to our ‘home grown’ technologists, including semiconductor manufacturers but so far has put very little money on the table. There are a number of actions it could (should?) do in the short
Components in Electronics
term to support technology companies including; tax breaks on investment and future revenue, enhancing the investment that manufacturers are currently making in fundamental research within the university sector, and increase support for education and training in the range of very specialist skills the technology sector requires.
A wider move towards a managed market economy
According to data published by the World Bank in 2024, the UK economy is overly reliant on the ‘Banking and Services’ sector that produces 72 per cent of GDP, with ‘Industry’ contributing just 17 per cent, a potentially unstable balance of the kind that precipitated the 2008 World Banking Crisis. We need the higher “value add multiplier” of manufactured products to rebalance the economy and hopefully drive increased growth, but that calls for a significant long-term investment in UK industry and manufacturing.
But, as the US administration is just beginning to find out, it’s not a quick or easy process for semiconductor manufacturers. Western governments can coerce the investment, construct and equip the fab, alongside its support services and supply chain partners, but recruiting the many very highly skilled employees needed to operate them is a huge challenge. The culture and common working practices in Asia-Pacific economies — where highly qualified PhDs
and professors are willing to work within the 24/7/365, three-shift system required to run a semiconductor fab — are a cultural anathema in the US and other Western economies, meaning the cost of operating new facilities there will be significantly higher than in Asia. And I’m assuming they will achieve the same yield targets (a key element of profitability) in the necessary time frame, which is absolutely not a given!
Customer multi-sourcing strategies Many customers still believe that secure second sourcing of electronic components is a prerequisite for their new designs because second-source availability has the benefit of ensuring security of supply and provides some leverage over supplier pricing, which may or may not be true. Over the past 20 years, we have seen this belief erode as the result of mergers and acquisitions between components manufacturers, increasing obsolescence and technology changes in manufacturing, particularly of semiconductor and passive components. There has also been a change over time in the dominant market drivers for electronic components, which demand components with increased integration, lower power and ever smaller form factors to be effective. The more ‘traditional’ market sectors – industrial, medical, aerospace, military – were not large enough to warrant bespoke development but these applications too have benefitted
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