Electronics Supply Chain Outlook

• Memory chip production is lagging rapidly growing demand, shown by exports from South Korea, mainland China, Japan and Taiwan. That’s resulted in higher memory-chip prices.
• The World Consumer Electronics Purchasing Managers’ Index^TM (PMI^TM) shows new orders remained in decline in December, marking the lowest level since February 2024.
• Rising investment in the defense sector is likely contributing to an improvement in new orders for industrial electronics manufacturing.
• Higher prices are drawing in additional capacity from both South Korean and mainland Chinese manufacturers, though this will only contribute significant supplies from 2027 onward.

Electronics supply chains are struggling to meet elevated and still growing demand for data-center equipment amid the global race for AI supremacy. Investments in AI accelerators and infrastructure remain at the heart of the electronics boom, as shown by expectations for capital expenditures by the main hyperscalers.

Demand growth from other parts of the electronics sector has slowed down markedly, making it more challenging for buyers to strike deals with equipment providers, most notably in memory systems. The World Consumer Electronics Purchasing Managers’ Index^TM (PMI^TM) shows new orders remained in decline with the December reading of 46.9—below 50 indicates decline—marking the lowest level since February 2024.

One bright spot is that new orders for industrial electronics manufacturing, including the capital equipment used in factories, have steadily improved during 2025 and reached 50.0 in December, marking the highest level since August 2024.

The industrial improvement likely reflects renewed investment in manufacturing as trade policy uncertainties begin to lift; rising investment in the defense sector; and fiscal stimulus in the export-led German manufacturing sector.

A wide range of technology companies across both components and devices have highlighted that a potential constraint to AI growth and a risk to profitability for non-AI products is being caused by an acute memory-chip shortage, particularly for DRAM.

Supply chain related sentiment expressed on corporate earnings calls slumped during the first quarter of 2026 so far, according to ProntoNLP data. The biggest downturn in sentiment came from semiconductor makers, marking the worst sentiment since the third quarter of 2022.

A sign of constrained supplies can also be seen in slowing growth of exports of memory chips, with global shipments led by South Korea, mainland China, Japan and Taiwan. While shipments from the four combined increased by 16.7% year over year in the three months to Nov. 30, 2025, the rate of development has slowed markedly.

There was a small recovery in December from the three that have reported data (South Korea, mainland China and Japan), yet it still represents a slow rate of growth compared with the growing demand from the AI sector.

Intensifying US-mainland China strategic competition and perceived greater uncertainty over US security guarantees will drive major Asia-Pacific economies to increase their defense spending above GDP growth. National data for 2025 and 2026 show above-GDP-growth increases in defense spending across Asia-Pacific, including by memory chip exporters mainland China and South Korea.

The supply shortage is driving significant price increases, several electronics companies have noted. The surge in prices can be seen in the average value per unit of South Korean memory-chip exports, which increased by 42.0% year over year in December, and by 20.3% versus the prior three months to reach their highest level since at least 2016. Aside from competitive pressures, the increased value per unit resulting from increased HBM systems will have contributed.

The major device-makers have noted that the impact of higher market prices will take time to feed into their purchasing costs and their product pricing decisions.

The PMI for computing and communications equipment input prices accelerated to their fastest rate of increase in December 2025 since July 2022. Output prices have also started to accelerate, but at a slower rate.

Firms with US-based assembly will also face uncertainties for their import costs from Section 232 tariffs on chips that are not advanced and AI-related systems as the review is set to continue at least through April 2026.

The rising prices are drawing a supply side response, with chipmakers starting to invest in new memory manufacturing capacity. However, that will only contribute significant volumes from 2027.

Investments by the big three chipmakers should drive higher production over the next five years. Visible Alpha data shows combined production by Samsung Electronics, SK Hynix and Micron will grow by 132.8% in bit-terms across regular DRAM and HBM in 2030 versus 2025. That’s expected to be led by a 659.3% rise in HBM while DRAM is expected to increase by 112.7%.

Global AI momentum is likely to continue in 2026, with Asia attaining a larger global role. Major Asian economies will respond to developments in AI by introducing regulations to reconcile protection of domestic industries while seeking to secure access to advanced technology.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.