Defense Sector Surge: New Realities Reshaping Electronics Manufacturing
By Eric Miscoll and Philip Stoten
As geopolitical tensions rise globally, a significant transformation is underway in the defense sector of the electronics manufacturing supply chain. Our conversations with industry leaders at APEX 2025 revealed how changing government priorities are creating unprecedented opportunities while electronics manufacturers adapt to meet these new demands.
Europe’s Defense Awakening: A “Sea Change”
In Europe, where defense spending had languished for decades following the Cold War, recent events have forced a dramatic reversal. Alison James, Senior Director Europe of Government Relations at IPC, described this shift in stark terms during our conversation: “In defense, there’s been a sea change. It’s been coming for a while, but obviously the situation has been made clearer in the last weeks that Europe needs to be more self-sufficient.”
What’s remarkable is not just the recognition of the need, but the speed of the response. “When they need to, the European Union can rally pretty quickly, and they did,” James noted. “All of these proposals have been made and we still have to see the implementation and how the focus will be on implementation.”
Thomas Michels, CEO of German-based PCB manufacturer ILFA, added that Germany has approved a massive budget with approximately half a trillion dollars allocated for defense over the next decade. This is part of a huge $1 trillion budget split between defense and infrastructure.
This development is particularly significant as it follows the German election, indicating broad political consensus on the need for increased defense capabilities. European manufacturers see this as long overdue recognition of security realities.
Defense Electronics: A Growing Industry Priority
IPC recently highlighted the growing importance of electronics in defense systems. “We released a report this week on defense… It’s a data-rich report on the value of electronics, where we expect to be by 2035, we expect that 25% of the value of defense systems will be electronics,” James explained.
This insight reinforces what many EMS companies are experiencing: defense electronics is becoming a strategic priority that crosses borders. Xaver Feiner, VP of Zollner, confirmed these trends, noting that while many markets remain flat, “defense is something that is still growing,” providing stability when other markets falter.
Nicole Russo, CEO of Microboard, highlighted how defense has become a key growth driver for many American manufacturers: “There’s no doubt defense is strong. We heard that yesterday. We keep hearing that. I think it will continue to be strong.”
European Electronics Autonomy Challenge
James emphasized that Europe faces significant vulnerabilities in its defense electronics supply chain: “As we look to build our defense industrial base, let’s make sure that we’re taking account of our own electronics base and making sure that we’re building that up so that we can meet our own needs, because it’s a vulnerability.”
This aligns with Thomas Michels’ observation about European defense spending patterns: “Out of the European defense budget so far, 78% of the spendings is outside of Europe, and 63% are spent in America, without asking for offset.”
Unprecedented Speed of EU Response
One of the most remarkable aspects of Europe’s defense awakening is the speed with which the EU is responding to the changed security landscape. “In the defense area they’re really moving quickly,” James observed. “So already by June there will be another proposal for simplification and omnibus for the defense area. They’ve got that triggering of enabling fiscal space would happen immediately.”
This represents a fundamental shift in how the EU typically operates, as James explains: “These are fast-tracked. They’re really fast-tracked programs so we can move quickly when we need to in Europe. But it’s quite unusual, and for Europe this is fast, this is a fast enabling of resources.”
Tariff Uncertainty and Market Disruption
A significant challenge facing defense electronics manufacturers is the uncertainty surrounding tariffs and trade policies. Alison James highlighted this concern: “Businesses need certainty right and this is what everybody’s finding right now with tariffs, also with regulation and simplification… None of this can happen overnight. Industrial bases are built around tariff structures, so changing that, or not knowing if it’s changing soon, has a massive impact.”
For manufacturers outside traditional defense hubs, this sector represents a significant opportunity to offset uncertainty in other markets. Andrew Williams, CEO of Libra Industries, described their defense-focused capabilities: “We have capabilities in precision machining, high-end integration of systems, clean room assembly and your typical traditional electronics manufacturing… focusing primarily on high reliability, highly challenging markets like Semi Cap, defense, aerospace, medical.”
The Supply Chain Security Imperative
Defense contracts increasingly prioritize supply chain security, with many requirements for domestic production of critical components. This trend benefits manufacturers with regional capabilities who can ensure secure supply.
Bob Hermann, COO of Libra Industries, described their approach: “We have a consolidation. We had, as we said, a site in Cleveland as well as a site in Dallas. Both did PCBA. We’ve moved it all into our Dallas facility and created a center of excellence.”
Allison Budvarson, COO of Out of the Box Manufacturing, pointed to specific challenges: “PCB fabrication, especially for us in the defense market. Stateside resources that can provide high technology in a quick turn are somewhat limited these days.”
Looking Forward: Europe’s Strategic Independence
The elevated defense spending environment appears sustainable for the foreseeable future, creating a rare area of stability amid broader market challenges. IPC’s Alison James highlighted ongoing industry initiatives to support European defense electronics autonomy: “We released it on Monday but that’s a continuation of what we’ve been working on for a number of years now, which is really having this understanding in the European Union that we need to build up the electronics base.”
This electronics focus is crucial, as James emphasized: “What happens is there’s not always an understanding that technology means electronics underneath that. So there’s a lot of work to continue to do to make the case for a resilient supply chain, not making everything in Europe, but making it critical so having a minimum autonomy threshold.”
Abel Castillo, Director of Sales at Aimtron, shared their experience pursuing defense opportunities across borders: “We work on different expansion plans. We are still interested in expanding in the North American market. We are still looking at the European market, the German market is one of the interesting ones for us to expand and then Southeast Asia.”
For electronics manufacturers with relevant capabilities, the defense sector offers not just growth but also business stability through longer contracts and higher margins. However, capturing these opportunities requires understanding the unique procurement processes, quality requirements, and security standards of defense customers.
The manufacturers best positioned to benefit will be those who can navigate complex defense procurement landscapes while demonstrating impeccable quality, security, and reliability across multiple regions.
Industry Leaders Quoted in This Article
- Alison James – Senior Director Europe, Government Relations, IPC
- Thomas Michels – CEO, ILFA (Germany)
- Xaver Feiner – VP, Zollner (Germany)
- Nicole Russo – CEO, Microboard (US)
- Sean Niell – General Manager, Vexos
- Andrew Williams – CEO, Libra Industries
- Abel Castillo – Director of Sales, Aimtron
Industry Leaders Quoted in This Article – watch the full interviews on the SCOOP YouTube channel
