In another sign of renewed strength in the electronic components market, the Supplyframe Commodity IQ Demand Index rose by 8% sequentially in July, ending three months of decline. However, the overall index remained nearly 20 points below the 2020 baseline, indicating that sales have not yet recovered to the robust levels seen four years ago.

Micron's high-bandwidth memory has been sold out throughout the year and into 2025 due to the constraints of the key technology for AI server demand. With its focus on HBM capacity increases and DDR5, data center customers employing DDR4 will continue to see price increases, as will industrial, automotive, and mobile device OEMs that depend on Micron for more mature DRAM products. 

Expanding logistics costs, particularly freight rates, are leading component manufacturers and distributors to raise part pricing and, in some cases, additional service fees. For example, Avnet added service fees for new shipments in June. The Drewry World Container Index has more than doubled since January, rising just over $3,000 per 40-foot equivalent (FEU) container. Drewry indicates that just one of the eight key East-West trade routes has experienced an annual spot pricing decline; the average annual increase was over 140% across all eight.

Although the increase in inductor input costs has waned, raw materials remain markedly higher than pre-pandemic levels, and the exchange rate between the U.S. dollar and the Japanese yen is impacting imported materials and operational costs. Despite the rise in competition from China, the Commodity IQ Price Index across all inductor types was up 4% in July compared to January and almost double year-on-year for July.

Lead times for diodes and transistors have normalized, and some auto-grade power MOSFETs are oversupplied. For diodes year-on-year in July, the Commodity IQ Lead Time Index was down 8.2%, and power MOSFETs of all grades were down by over 40%.

The Commodity IQ Demand Index for all components tracked by Supplyframe fell to its lowest level for the entire year in June, reflecting the slow pace of end-market demand outside of the AI and a select few other applications.

The capacity crunch will worsen through H2 and well into H1 2025. Across all memory ICs, the Commodity IQ Lead Time Index has remained at twice the 2022 baseline for nine consecutive months. Leading maker Samsung plans to increase pricing for its entire memory portfolio by as much as 15%, with server components undergoing the most significant increases. DDR5 is experiencing larger price hikes than over inventoried DDR4. Contract DRAM pricing is expected to increase by an average of 10% in Q3 for server and PC variants.

According to the Commodity IQ Lead Time Index, excluding memory, 61% of all semiconductor lead time dimensions are characterized as Stable/Some Constraints and 30% as Declining/No Constraints for H2. 

Regional component design-in cycles are robust, with the Americas, Asia-Pacific, and EMEA all well above their respective 2020, 2021, and 2022 medians – further making the case for forthcoming demand as AI demand is now the new EV and PC/server upgrade cycles start to take hold, and smartphone demand is showing signs of life. However, the array of contradictory data reflects uncertainty in the economy and the electronics market, with temperamental macroeconomics and uneven inventory normalization. As a result, Supplyframe is advising buyers to keep a close eye on market developments and be prepared for unexpected twists as 2025 looms near.

Sourcing activities have been relatively stable for the past 11 months, signaling that demand has likely bottomed at a level below both the Commodity IQ Demand Index baseline and the 2023 median. Though delayed, the industry's supply side largely anticipated meaningful demand increases in late Q4 and into H1 2025. The return of positive book-to-bill ratios across some device types also indicates that Q2 marks the low point of this cycle.