Global Chip Shortage 2022: What Should Your Business Do?

As many companies and schools went remote, the demand for laptops, gaming systems and other consumer electronics skyrocketed, depleting inventories, and accelerating the need for chips. Most chips aren’t made in America due to cheaper cost of fabrication—as of 2020, only about 12% are, according to James Lewis of CSIS’s Strategic Technologies Program. These few American factories shut down early in the pandemic, making them scarce while orders for them remained unfilled.

Then comes the supply chain issues.

With the lion’s share of chips being made by either TSMC or Samsung, ports were also shut down and containers full of chips sat idle, not reaching their destinations at equally backlogged ports abroad. The buildup of goods at the ports became exacerbated with labor shortages.

Demand plummeted for cars in the early days of the pandemic, leading auto companies to cancel orders. As a result, major chip plants switched over to manufacturing chips to meet consumer good demand, which makes up a much larger share of the chip market. Car chip orders were subsequently pushed back in the order queue. Once consumer demand for cars picked back up again, manufacturers were unable to fulfill orders, leading to a huge backlog and inflated prices of both used and new cars. The automotive industry, which has traditionally ascribed to a “just-in-time” delivery strategy without any contingency planning, found itself in a production quagmire.

Environmental factors added fuel to the supply chain fire—Taiwan experienced its worst drought in 50 years, leading to a water shortage, a crucial chemical in chip manufacturing, impacting TSMC’s output. A fire at Japan’s Renesas Electronics plant destroyed an entire building in March of 2021, and the power grid failure in Texas in late 2020/early 2021 cause NXP Semiconductor NV near Austin to shut down. Both companies supply chips for cars.

The container ship that ran ashore in the Suez Canal had a significant impact on global supply chains, blocking the critical shipping route bringing an estimated 15% of international trade for 106 days starting in March 2021.

If your organization is struggling to obtain new data center hardware due to the chip shortage, contact CDW today to learn about the benefits of moving to a public cloud solution offered by our industry-leading business partners. We have certified solution architects and engineers connected to each of the big three cloud providers, ready for optimize a cloud solution suited to your business model and industry standards.

When buying devices for business or personal use, make sure to act quickly when the products become available. Be wary of lower quality products and less-than-reputable vendors, especially now – there are reports of defective chips entering the market due to the shortage. Also consider the task at hand—if your business doesn’t require the latest and best technology, you may consider delaying your purchase.

For businesses considering a cloud migration, the chip shortage hasn’t had anywhere near the negative impact on public cloud providers like AWS, Azure or Google Cloud than it has on consumers and enterprises. In fact, according to Andy Dennen, GTM Program Manager at CDW, the chip shortage may have even created a net positive based on these three factors:

1. Shared Resources – The business model of cloud providers is based on the sharing of resources; namely, chip-based resources. These cloud providers are built on virtualized, multi-tenant systems whereas the typical data center, even if fully virtualized, can’t come close to this level of efficiency.

2. DIY Chips – Cloud providers design, produce and leverage their own chipsets which are optimized for their cloud services. One could make the case the current chip shortage may expedite innovation not only in compute chips, but networking, power and a number of other applications.

3. Size – Due to the sheer size of the major cloud providers, they can strike quantity and pricing deals with chip manufacturers when they have a need for outside chips no single organization could match.

Most experts agree the shortage will continue through 2022 and into 2023. Demand remains sky-high and plans are in motion for new Intel and Texas Instruments foundries in the US, adding to the estimated 29 foundries being built worldwide this year and last.

However, this will not be a quick fix to the situation and the omicron variant continues to spread worldwide, confounding a return to normalcy when it comes to the global supply chain. Additionally, there is reluctance for companies to invest in additional chip foundries since chips are not high profit margin products and demand for chips historically fluctuates: too many chips flooding the market could drive down prices once the supply chain issues resolve.

The real answer is no one knows for sure when the chip shortage will end and some industries will recover faster than others—some predict consumer tech will recover first, with GPU supplies improving in the second half of 2022, according to NVIDIA CFO Colette Kress, and the auto sector will follow well into 2023 according to most estimates.

If you’re looking for hardware, be sure to order from CDW as early as possible. We carry everything from laptops to the latest flash storage devices. If you’re having trouble getting ahold the hardware you need to scale your data center, be sure to contact us to learn more about what the cloud can offer.