Almost every technical device is equipped with chips - be it servers, cars or even the refrigerator. And no, we're not talking about the kind of chips eaten in front of the TV - there's no shortage here - but computer chips. Since the start of the pandemic, more people are in home offices than usual - this has triggered an enormous acceleration of digitalization in the world of work. Even leisure activities are dependent on technical devices.
IT devices are playing a bigger role than ever before at a time of global pandemic. As a result, demand for equipment has increased significantly - and with it demand for semiconductors - triggering a global chip shortage that is also impacting delivery times for network equipment suppliers such as Cisco and Juniper. Below, we explain the consequences and background of the supply bottlenecks and show how you can minimize the impact on your business.
The global semiconductor market saw its highest growth in 10 years in 2020. The reason is obvious - the pandemic forced more people to move to the home office and update their technical devices. As a result, the semiconductor industry experienced a significant increase in demand. However, the production capacity of chips cannot be increased overnight.
Furthermore, disruptions in the production process have a negative impact on delivery times. Since production capacities are fully utilized, there are no buffers for production disruptions. This will continue to be a problem for all chip manufacturers' customers in the future.
The manufacturing process of chips is generally very complex and expensive. To produce just one chip, several hundred steps have to be carried out. Each process step must be carried out with enormous precision so that a yield can be obtained at the end. To illustrate this: transistors are in the nanometer range, sizes of 1 - 3nm are already possible - a human hair is many times thicker. However, the increase in integration density (number of transistors per unit area) is not only achieved by reducing the size of the structures, but also by an optimized and complex arrangement.
Since chips are designed for a long application time, they must function highly reliably. To be able to guarantee this, they must accordingly undergo several test procedures. For this reason, the entire manufacturing process can take up to three months. So a chip cannot simply be ordered at short notice; production capacities are planned months in advance of the actual manufacturing process.
The complexity of production has also resulted in only a few companies worldwide specializing in semiconductor production, including Intel, Samsung and Taiwan Semiconductor Manufacturing Company (TSCM).
Also, additional fabs cannot be easily built. New factories are extremely costly and take years to reach full production. However, due to high demand, billion-dollar investments in new sites have already been announced, including by Intel and TSCM.
The chip shortage cuts across all industries, affecting not only IT manufacturers in particular, but also the automotive sector to a high degree. Chips have already been used in cars for several years. The car is no longer a purely mechanical system, but increasingly developed into a sophisticated electronic system that requires more powerful computer chips.
In addition to the general boom in demand, the automotive industry is also struggling with decisions made last year. During the initial lockdown last spring, some companies slashed production and also shut down or canceled chip orders. When the market returned to halfway normal and demand even exceeded expectations, production was ramped up and even increased. Now, however, there is a shortage of semiconductor chips, especially for high-priced car models. This demand from the automotive industry is in direct competition with communications technology, which often also has a higher willingness to pay a higher price for chips.
However, IT manufacturers were also unable to foresee the boom and are suffering from supply bottlenecks. Among network equipment manufacturers, product groups that rely on high-performance chips are also affected. Specifically affected by the shortage are routers as well as supervisor cards or line-ups of modular switches.
An end to the shortage is not in sight until 2022 at the earliest, according to many experts, when new capacity is expected to have been created or demand will have normalized. Further, the price of chips is expected to rise. So instead of focusing on the production of new chips, it is worth taking a look at refurbished devices. These currently offer better availability and shorter delivery times in many cases. Furthermore, they offer the advantage that the devices have already been extensively tested and defective devices can be virtually ruled out - a benefit that should not be neglected, especially when replacements are hard to come by. Reusing used hardware also makes more sense from an ecological perspective. The production of new chips is not only expensive and time-consuming, but also causes a lot of CO2. It is therefore worth investing in already existing systems.