After several years of tumult, marked by extreme uncertainties and demand-supply fluctuations, distributors are eager to welcome a year of unremarkable growth.
Distribution is ready for humdrum. In fact, the entire market is looking ahead to what can be described as “ordinary times,” a season of lackluster demand-supply swings, tepid to low sales growth, lack of drama in supplier-customer relationships and the chance to step back, assess economic conditions and rebuild where necessary. It has been years since the electronic component distribution market has enjoyed the regular “buy and ship” conditions that are slowly emerging today. Instead, this decade started with distributors riding the wild bucking bronco of unbridled demand, intense scarcities, high average selling prices, elevated lead times, and intense forecast inaccuracies.
In the last year, the top distributors have faced and endured varied sets of dynamics, featuring a challenging forecast environment, oversupply, pricing pressures and intense efforts to get customers to comply with stringent supply conditions signed during times of shortages, observers said. “This market is essential for ensuring seamless availability, reducing supply chain bottlenecks, and meeting the growing demand across various sectors,” said analysts at Research and Markets, in a report. “However, the market faces challenges such as fluctuating raw material prices, stringent regulatory norms, and supply chain disruptions due to geopolitical tensions or global crises.”
Distributors are still working on reducing stocks in markets where they have stalled demand and excessive components. “We remain focused on reducing inventory levels where elevated,” said Ken Jacobson, CFO at Avnet, during the company’s latest conference call with analysts. “We continue to have ongoing conversations with our supplier partners on specific opportunities for inventory increases that we will only consider if there is a benefit to Avnet. Such benefits may include incremental margin, improved terms, additional stock rotation rights or additional market share.”
More than inventory restocking will drive the approximately 8 percent annual sales growth that some forecasters are predicting for the distribution market starting in 2026. Before then, though, distributors will wade through another tough period of closely watching operating costs and tracking customer production requirements to match these with forecasts. 2025 will not be as rough as the last couple of years, however. In the current 2025 fiscal year, ending June 30, for example, Avnet is forecast to post $22.4 billion in sales, down 5.7 percent, from $23.8 billion in the previous fiscal year. In fiscal 2026, though, Avnet’s sales will shoot up to $24.2 billion, up 7.8 percent, according to the consensus estimate of analysts tracking the company. This will represent a reversal of the 10 percent decline it reported in fiscal 2023. The improvement is coming from a recovery in the company’s Asia business and rising shipments to OEM customers, said CEO Phil Gallagher, during the conference call. “Based on the industry sources we follow and the suppliers and customers I speak to regularly, global inventory levels across the supply chain are slowly improving granted with pockets of oversupply in certain areas,” Gallagher said. “These same industry sources are still projecting mid-to-high-single-digit growth rates on average, over the next three calendar years.”
Looking ahead
The same dynamics are playing out throughout the broad components business and seeping into distribution. Researchers say they expect the global components market to increase 7.2 percent on a compounded annual growth rate (CAGR) basis between 2025 and 2033, rising to $758 billion, from $390 billion. Distribution represents less than half of the total available market (TAM), though. Due to the fractured nature of the component distribution market globally, determining the actual size of the business is difficult. Research and Markets estimates the electronics distribution sector grew to $156 billion in 2024, up from $143.9 billion, in 2023. The research company said it expects the components distribution business to grow at a CAGR of 8.4 percent between 2023 and 2030, increasing to $253.5 billion. “The market faces challenges such as fluctuating raw material prices, stringent regulatory norms, and supply chain disruptions due to geopolitical tensions or global crises,” the researcher said. “Despite these limitations, promising opportunities exist in expanding to emerging markets where digital infrastructure is burgeoning, thus increasing the demand for electronic components.”
Distributors have been expanding value-added services over decades, but these have increased in recent years as OEMs continue to transfer many supply chain management functions to electronics manufacturing services providers and other support services firms. The entrance of new OEMs, many of them focused solely on design and marketing rather than manufacturing, has changed the nature of services expected of component distributors, according to observers. “Distributors play an indispensable role in the industrial chain by providing product promotion, solution development, technical support, and delivery services to upstream and downstream,” said LP Information, in a research report. “In recent years, the upstream electronic component design and manufacturing industry has continuously launched new processes, new functions, and new products.”
The ability to ship products within a brief period of 24 to 72 hours anywhere in the world from a hub has been an advantage for companies like Digi-Key, Mouser Electronics and Farnell, the unit of Avnet focused on design engineering, according to industry observers. Analysts at Research and Markets said their “recommendations include investing in technologies like blockchain for better traceability, enhancing cybersecurity to protect distributed networks, and adopting AI-driven data analytics for accurate demand forecasting.” These value-added services and design support will help lift electronic component distributors’ revenues this year. Still, industry executives say they will continue to monitor the end-markets for signs of improvements or weakness and adjust their operations in response. Overall, though, the signs are promising and executives said they are optimistic about the future. “At times like this, we thrive from being at the center of the technology supply chain, helping our supplier partners to reach a long tail of customers and providing end-to-end customer solutions to satisfy their needs wherever they are on their product journey,” said Gallagher at Avnet.