According to CEOs of major tech companies, including Intel, IBM, Extreme, Cisco, and Juniper, a shortage of various CPUs and other components might affect the availability and price of IT equipment for the next 12 to 18 months.
COVID-19 sparked a surge in the worldwide remote workforce, resulting in a sudden rise in demand for new technology. According to industry executives and analysts, it also prompted the closing and reopening of processor plants, and rebuilding supply lines to pre-pandemic levels will be a protracted process.
Furthermore, the supply chain will get significantly disrupted by the chip shortage. This shortage will limit the manufacture of many types of electronic equipment in 2021. Foundries are raising wafer pricing, which causes chip manufacturers to raise device prices.
So, the entire tech industry gets caught in a catch-22 scenario fueled by supply and demand. The more expensive chips become, the more costly new tech becomes, and thus, there are fewer new technologies. Less new technologies mass produced means less money for the tech companies to buy the chips. Around and around it goes.
Here is the low-down on the chip shortage and the ripple effect it is creating.
The Shortage Domino Effect
Devices such as power management, monitors, and microcontrollers produced on legacy nodes at eight-inch foundry fabs, which have a limited supply, were the first to be affected by the shortage. This issue has spread to other devices, with deficits in substrates, wire bonding, passives, materials, and testing, all of which are supply chain components outside of chip fabs. Unfortunately, these are highly commoditized businesses with little room for maneuvering and a limited ability to invest aggressively on short notice.
Cisco Systems, for example, had its best product bookings quarter in almost a decade, demonstrating enterprise IT expenditure is recovering from the COVID-19 pandemic. However, supply chain difficulties continue to be a problem for the tech powerhouse.
Cisco Chairman and CEO Chuck Robbins stated during the firm’s fourth fiscal 2021 earnings call on Wednesday evening that, aside from a product order increase of 31%, the business had double-digit order growth across all of its client markets and geographies.
While there is a lot of demand for IT products right now, Cisco, like most other companies, is experiencing component shortages. Supply chain difficulties, according to Robbins, will have an impact on the first part of fiscal 2022, if not the entire year.
Furthermore, scarcity has had a particularly negative impact on some businesses. In 2021, for example, the global car industry is predicted to lose $110 billion in revenue due to component shortages. According to one consulting firm, this prediction is up 81.5% from $60.6 billion in January.
When will the Shortage be Resolved?
There is substantial debate in the IT sector over how long the shortage will endure.
According to IBM President Jim Whitehurst, the global semiconductor shortfall might take a couple of years to resolve properly. Whitehurst theorizes a significant time lag between developing technology, building a fabrication plant, and producing chips.
Intel’s new CEO, Pat Gelsinger, reiterated that sentiment, predicting that the worldwide chip shortage will continue for a few years. The business is rebuilding some of its factories to enhance production for automakers, but the supply train will take at least a few months to ease.
On the other hand, the largest impact will last another six months to a year, according to other providers.
Extreme Networks CEO Ed Meyercord stated during the company’s recent financial results call that demand is currently outstripping supply as the company deals with supply chain constraints caused by chipset and other industry-wide component shortages.
Cisco CEO Chuck Robbins estimates that the company has about six months to get through the immediate crisis. Suppliers are creating a higher capacity and over the next 12 to 18 months, that will only improve.
Others believe the crisis will persist even longer.
Arista CEO Jayshree Ullal told analysts at the company’s last quarterly briefing that the supply chain has never been so limited in the company’s history. Ullal indicated that they must plan for a 52-week lead time on numerous components to put this in context.
Arista has products with exceptionally long lead times for which they prepare ahead. However, according to Ullal, the semiconductor supply chain is still constricted, even though they have great partners. Furthermore, while the Arista team has made some critical measures to expand their inventory for some of these long-lead-time components, they may still utilize a lot more parts than they now have.
Juniper Networks CFO Ken Miller told analysts that ongoing supply constraints are likely to continue for a year or more in its first-quarter earnings call.
According to Miller, Juniper continues to work closely with its suppliers to improve its resiliency and mitigate interruptions beyond its control. Despite these initiatives, Miller expects that long lead times will continue for the foreseeable future. Furthermore, while the situation is dynamic, Miller hopes that they will have enough semiconductor supply to satisfy their full-year financial forecast at this time.
So, How Can You Get the Networking Equipment You Need?
Experts claim restoring semiconductor capacity is a difficult undertaking.
Because manufacturing a finished semiconductor wafer, known as the cycle time, takes roughly 12 weeks on average but up to 14-20 weeks for advanced methods, making a completed chip for a client can take 26 weeks. It takes considerably longer to refine a chip’s fabrication process to increase production yields and volumes — around 24 weeks.
With all these things in consideration, you may wonder: how can these challenges be overcome?
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