It’s not quite the dystopian headlines dreamed up by George Orwell or Margaret Atwood, but the current attention given to the semiconductor chip shortage is the biggest indicator of our reliance on technology.
The predicted losses from the automotive and IT industries, along with the effects lasting anywhere from six months to two years, paint a picture of over-reliance on computing to push out products. The automotive industry alone is set to lose $110 billion this year, as the chips that power nearly all of the modern cars’ functionality continue to be unavailable.
Such a loss has naturally gained the attention of the technology industry and has prompted a lot of chief executives to take a guess at how long the shortage will have an effect on manufacturing. However CCS Insight senior director of research, Wayne Lam, says the shortage mainly applies to smaller components that are not on the bleeding edge of technological innovation, but are just as necessary to produce a device.
“The shortage is not so much the high ticket chips, the processors, or even memories, it's more benign like power management, or some sort of analogue chipset that isn't necessarily on the bleeding edge of semiconductor technology” says Lam.
“Those parts are in a bit of a crunch because they are so necessary. It's like buying a brand new car without spark plugs, you just need that one small piece to make it work.”
A fuss over nothing?
While the chip shortage is being painted as a tech industry apocalypse in some quarters, not all parts of the sector have been affected equally. Ben Stanton, research manager at Canalys, says the mobile industry has experienced a first quarter largely unaffected by the chip shortage, with global analysis firm Counterpoint also reporting a 6% year-on-year increase in European smartphone sales.
Data from Counterpoint found that Samsung and Apple shipments grew 13% and 31% year-on-year respectively, with Xiaomi, Oppo, OnePlus and RealMe all seeing between 73% and 183% growth on the year.
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“The chip shortage is certainly having a wide impact across many industries” adds Stanton. “The smartphone market, though, has actually been fairly resilient, particularly in Q1 when many vendors blew past their quarterly target.
“The bottlenecks are there and are having an impact, but they have been slightly overblown and are exacerbated by many vendors now overbooking on component orders to try and secure supply. But if you look at some of the biggest markets, like China, actually the channel was stuffed with inventory by the end of Q1.”
Everything might go
Although mobile may be sitting pretty for now, IBM president Jim Whitehurst told the BBC the computer chip shortage could last up to two years and that the industry may need to look into recycling or extending the life of certain computing technologies.
For those looking to upgrade a suite of laptops, IDC manufacturing analyst Maggie Slowik says purchasing decisions will be influenced by availability rather than price.
“We've already seen price increases and the forecast is that these products that contain semiconductors will also see prices increase going forward,” says Slowik. “But we certainly saw with consumer goods, that people are willing to switch very quickly to a different brand, if the particular brand they previously relied on wasn’t available.
“Businesses have a lot of choice when it comes to office hardware and they can quickly switch brands if a particular product is priced too high, or they have to wait for too long. I think that raises this concept of businesses being more brand agnostic, which makes it hard for manufacturers to retain any loyalty. This chip shortage situation certainly doesn't help at all.”
Although the shortage could affect the hardware employees use on a daily basis, Lam and Stanton both say the mass shift to remote working as a result of the pandemic will have alleviated some of the pressure that may have otherwise been felt by businesses.
As organisations move more of their workforce to collaboration platforms, such as Teams, Slack or Webex, an employee’s ability to do their job is less reliant on the hardware they are using and more affected by whether they have a stable connection to a cloud environment.
“For the enterprise market, how you’re affected by this shortage is going to depend on where your business is placed. If you're building more cloud servers, that business is going to keep going” said Lam. “The pandemic has proved that we can productively work virtually and that transition to cloud computing is only going to accelerate; the demand is indisputable.”
“Digital transformation has accelerated, if anything” said Stanton, “remote working has forced companies to shift workloads to cloud, and invest in tools to deploy and manage an estate of devices which is decentralised, and no longer exists in a fixed office location.
“Going forward, there will be constraints that definitely last until the end of 2021. One important point to note, though, is that lucrative developed regions are being prioritised for device allocation, so the impact of shortages may actually affect areas like Africa, Southeast Asia and Latin America more.
“Another interesting nugget I am hearing, particularly in relation to Q2 2021, is that suppressed demand for smartphones in India due to the terrible outbreak of COVID-19 is actually freeing up devices and components to fulfil orders in other markets. So I think the important point is that there are many more regional nuances than people realise. The chip shortage is often painted as a ‘global’ issue, but the impacts may well be local.”
Supplying Demand
Although it can be seen as an isolated issue, this chip shortage, along with the global pandemic, tremors from changing relationships relating to Brexit and the US and China’s trade war, as well as global incidents seen in Suez have had huge effects on the supply of products.
Slowik says the main lesson for businesses to learn from the semiconductor chip shortage is not about our reliance on technology. Instead, she implored enterprises to assess their supply chains, making sure they are diverse with distributors they trust, minimising the effect of global events on their business.
“We’ve been talking about supply chain risk for a long time, but this particular shortage and the pandemic has raised the issue that companies now need to really start looking at further diversifying their supply chains.
“One of the hard lessons businesses should have learnt over the past year is that they cannot just assume that there's going to be unlimited supply. They have to build agility into their procurement and supply chain strategies so that they have that additional buffer to freak events, such as the Suez Canal blockage, without having to hoard products.”
