The Semiconductor Market Going into 2025: A Landscape of Opportunities and Challenges

New year, same semiconductor supply chain. As the semiconductor industry kicks off another year, it is at the center of a critical juncture. After years of excess inventory strangling the global market, the unneeded surplus is well on its way to being entirely resolved. With the trailing end of excess mitigated, the market is expected to shift into a typical growth cycle over the year.  

While organizations have been desperately waiting for the market to turn, stability might not be in the cards for many companies despite consumer demand recovery. According to industry experts, 2025 might be a year of uncertainties. This is due to growing challenges amidst the opportunities a recovering market presents.

From geopolitical tension to labor shortages, several key issues are poised to shape the trajectory of the semiconductor supply chain in 2025.  

1. Trump’s Tariff Policy and Ongoing Trade Tensions

As the United States prepares for a new administration, the legacy of President Donald Trump has caused rippling effects across the global supply chain. President Trump’s initial term saw the introduction of the U.S.-China trade war, which has continued through today. During Trump’s Presidential campaign, he said he would introduce a 10%-20% tax on all imported products, with a possible 60% tax on Chinese goods.  

Similarly, Trump has floated the idea of overhauling the CHIPS Act, commenting that it was “a very bad deal.” The CHIPS Act has brought over $400 billion in investments to the domestic U.S. semiconductor industry, and many credit its bipartisan support as a significant step in reinvigorating U.S. semiconductor manufacturing. Trump has also commented on the possibility of levying tariffs against chip powerhouse Taiwan, falsely accusing the country of stealing business from America.

Going into 1Q25, organizations' primary concern is the impact the ongoing trade war will have on the global semiconductor supply chain. In the last few weeks of last year, the trade war saw significant developments, including China’s export restrictions on minerals critical in producing different components. These minerals, including gallium, germanium, and antimony, have seen massive disruptions, including significant lead time delays and skyrocketing sales prices.

Before the ban, the sale price of antimony trioxide more than doubled, reaching $39k per metric ton. Many U.S. companies were already struggling to obtain the critical material, and in September 2024, they had only several weeks' worth of supplies left.

Since the U.S. has relied on the import of antimony since closing down its last domestic mine in 2001, the availability of antimony has been significantly constrained, putting the squeeze on many aerospace and defense contractors that regularly use antimony within their processes.  

Similarly, China’s organizations have been under great strain since the U.S. and its allies began restricting exports of advanced semiconductor manufacturing equipment and chips. Recently, the Netherlands announced its plan to limit exports of some semiconductor manufacturing equipment further, which could further strain China’s chipmaking ambitions.  

As we head into 2025, the risk of further tariff escalation remains a looming threat. Any expansion of tariffs could disrupt the already fragile semiconductor supply chain, and increasing costs for raw materials could force some chipmakers to offset the price onto the consumer. Additionally, the possibility of "decoupling" of the U.S. and China tech ecosystems could lead to a fragmentation of the global semiconductor market, with companies in both countries seeking to build self-sustaining, nationalized supply chains. This shift could affect cost, availability, and technological progress.

However, the week before President Biden left office, he announced a new regulatory framework for the responsible diffusion of advanced artificial intelligence technology. The Department of Commerce’s Bureau of Industry and Security (BIS) announced “controls on advanced computing chips and certain closed artificial intelligence (AI) model weights, alongside new license exceptions and updates to the Data Center Validated End User (VEU) authorization.”

According to those familiar with the framework, it would give the U.S. greater capabilities to safeguard national interests in artificial intelligence. The Biden Administration has prioritized this objective, enacting several orders over the last few years to maintain a firm grip on AI dominance.  

In a surprising move on his first day in office, President Trump rescinded Vice President Biden’s executive order regulating AI. Bloomberg Law reported on this development, revealing that the move would immediately halt key safety and transparency requirements for AI developers. The mandate, signed by Biden in 2023, previously required AI companies to share safety test results and other critical information with the federal government.  

There is an expectation that President Trump will likely replace this order with his own, but for now, the Trump administration might take a more hands-off approach to AI. This would benefit companies like Nvidia, which has been grappling with the changing requirements set forth during the Biden administration as the company attempted to breach China’s alluring market share.  

Many companies have been waiting to see how the geopolitical situation between the U.S. and China will develop in the coming weeks as Trump begins his second term.  

2. Labor Shortages

An increasingly important issue for the semiconductor sector is the growing shortage of skilled labor. The demand for semiconductor engineers, fabrication technicians, and other workers has surged as the world increasingly relies on emerging technologies such as electric vehicles (EVs), AI, and 5G. As countries attempt to increase the bandwidth of their growing domestic semiconductor ecosystems, many have found themselves without enough manpower to run these new facilities.  

In the U.S., for example, the demand for semiconductor engineers is expected to significantly outstrip supply in the coming years. According to the Semiconductor Industry Association (SIA), if ongoing efforts see the same success rate without any significant spike, 67,000 jobs will go unfilled by 2030. These labor shortages could become a massive bottleneck, impacting semiconductor availability in the future as new technology trends emerge.

The U.S. isn’t the only country experiencing trouble with the lack of a sufficient skilled workforce. The EU, China, and even semiconductor powerhouse Taiwan are grappling with shrinking talent pools. If the current rate of demand for semiconductors continues, an additional one million workers will be needed by 2030.  

The lack of skilled labor contributes to delayed production start dates for new fabs. Specifically, semiconductor manufacturing leader TSMC had to postpone the production commencement date for its Arizona fab and bring skilled laborers from Taiwan to the U.S. to help push the project date forward until they could hire local workers to fill the gaps.  

Without a robust pipeline of skilled workers, semiconductor manufacturers may struggle to meet rising global demand, impacting production timelines and leading to higher costs and longer lead time trends. This will be particularly harmful to companies working toward stabilization after the unpredictability of the last few years.

3. Instant Obsolescence on the Rise

Obsolescence is rising due to many factors, including the rapid development of advanced chip technologies and the prioritization of lucrative lines to meet the high demand. Likewise, the growing rate of mergers between chipmakers also results in components entering obsolescence as business priorities shift.  

The average age of electronic components has significantly halved over the last decade. The typical lifespan of leading-edge or advanced chips ranges between 2 and 5 years before performance degradation can occur. Shrinking lifespans, shifting business priorities, limited production capacity, and rapid technological innovation have contributed to the rising occurrence of obsolescence.  

Furthermore, these trends have impacted the rate of instant obsolescence, or when a component enters obsolescence instantly without time for a last-time buy (LTB). This leaves many original equipment manufacturers (OEMs), contract manufacturers (CMs), and electronic manufacturing service (EMS) providers without the ability to stock up on necessary components. This is particularly challenging for high-reliability companies such as healthcare, automotive, aerospace, and defense.  

In an average case of obsolescence, an announcement will be made by the original component manufacturer (OCM) a year before a part becomes unavailable. The OCM will then announce when companies can make an LTB, usually six months before a component becomes unavailable.  

When it becomes unavailable, organizations have to redesign around it or spot buy, which results in higher costs that businesses might be unable to afford. Depending on the market sector they service, this could be extremely difficult for some organizations.

Consumer electronics OEMs, CMs, and EMS providers can quickly redesign without costly recertification requirements. In comparison, high-reliability industries don’t have the same ease due to often months-long and costly recertifications. For example, the healthcare industry usually has to deal with a very involved pre-market approval process that requires clinical processes and peer reviews.  

The increasing obsolescence rate and the ongoing geopolitical situation suggest that instant obsolescence could continue to rise over 2025. To prepare for such challenging circumstances, organizations should monitor the market for announcements and take proactive measures now. This includes finding alternate parts with greater multi-source availability or partnering with a global distributor with experts who can source hard-to-find components.  

4. AI Demand and Component Shortages

Artificial intelligence has been the reigning technology king. The ongoing high demand for AI models, especially generative AI, has propelled several components into the stratosphere of popularity, such as graphics processing units (GPUs), high bandwidth memory (HBM), and solid-state drives (SSDs).  

As AI becomes more ubiquitous across sectors, from autonomous vehicles to healthcare, the demand for chips capable of handling AI workloads will rise exponentially. However, semiconductor supply chains are already stretched thin after several years of combatting excess through strategic production cuts. With the growing geopolitical tensions between the U.S. and China, these things could get much more complicated.  

For instance, critical materials like lithium and other rare earth elements used in semiconductor fabrication are in limited supply. These materials are also essential for electric vehicle (EV) batteries, further compounding the pressure on supply chains. While promising tremendous growth for semiconductor firms, the AI boom could lead to prolonged shortages of critical components, potentially delaying the rollout of new AI innovations.

Concurrently, the passage of greater export controls and restrictions on AI-capable components, like GPUs, could stifle innovation, as the AI-born king, Nvidia, has stated. The Trump Administration is taking a back seat regarding AI, which could loosen the reins on AI development, allowing further innovation and demand to flourish.  

In late 2024, Bain and Company predicted that if AI demand increased by 20%, there would be a component shortage for parts used in AI applications. With Foxconn's good revenue report in January, the AI craze is predicted to continue strong through 2025, offsetting concerns by analysts that there could be an HBM glut due to the overwhelming amount made by OCMs, such as SK Hynix and Samsung.  

Similarly, the rising demand for data centers will likely impact the availability of components used in AI. This could contribute to longer lead times for parts required in AI applications and data centers.  

If there were a shortage, this would contribute to longer lead times, higher costs, and delayed production timelines. With this year's focus on AI and shifting geopolitics, the industry is almost primed for an AI-component shortage. Should this occur, organizations within adjacent markets should prepare buy-ahead orders now for the possible strain. If a shortage doesn’t happen, and companies wind up with excess, it will be far easier to sell their surplus to recoup capital than spend thousands in tight spot buy markets.  

This will not apply to the semiconductor market at large, as most industries are still grappling with flat consumer demand. Experts have warned that 2025 will see less of a rebound than 2024, so companies outside AI sectors should closely monitor market demand.  

Navigating the Road Ahead

With 2025 already in full swing, it is imperative to note the precarious state of the semiconductor market. While the sector stands to benefit from extraordinary technological advancements—especially in AI, high-performance computing, and EVs—its challenges are equally formidable. Geopolitical tensions, labor shortages, environmental risks, and the rapid pace of technological obsolescence all pose significant hurdles.

Many companies will face a delicate balancing act in the coming years: continuing to innovate and expand production to meet rising demand while navigating geopolitical risks with agility. While the challenging monster of excess inventory has been thoroughly vanquished, with only a few remaining spots of surplus, tepid demand will act as another inhibitor to growth after years of volatility.

Uncertainty is the word of the year for the semiconductor industry. It will require hearty resilience, as many sectors still grapple with the harsh downturn during 2023. To ensure that your company stays on track to take advantage of the opportunities and challenges of this year, you should work with a global electronic component distributor that knows the ins and outs of the semiconductor supply chain.

Sourceability's helpful tools can help make the market more transparent and predictable. These include our market intelligence solution, Datalynq, which can provide real-time insights on market availability, design risk, and future price trends. Are you ready to take advantage of the new paths 2025 offers? Contact Sourceability’s experts today.