The impact of the microchip shortage on the network industry

The manufacturing industry is facing one of its greatest challenges in years, a global shortage of microchips, and there does not appear to be an end in sight any time soon. Is there a glimmer of hope?

As the world shut down during the COVID-19 pandemic, employees at manufacturing facilities were unable to go to work, plants were closed and production halted, which led to a lack of supply. The distribution of that supply was also decelerated by tougher restrictions at international ports.

Prompted by the shift to working from home, the demand for consumer electronics surged in popularity, which resulted in numerous purchases of laptops, routers, printers, webcams, smartphones, and similar items that all communicate with one another.

Orders began to pile as manufacturers struggled to create enough chips to meet the new levels of demand causing a backlog to grow. The shortage has impacted approximately 169 different industries from healthcare and cosmetics to construction and defence.

This article discusses how the shortage has impacted the network industry.

The telecommunications industry is one of the fastest-growing industries and digital acceleration since COVID- 19 has brought about a surge in demand for microchips. These tiny pieces of technology are the basic building blocks of modern communications such as 5G, cloud networks, Wi-Fi and satellites, connecting volumes of IoT devices that previously did not have connectivity or microchips.

The global shortage of microchips, which has so far hit everything from electric cars to graphics cards, is causing huge delays for Internet Service Providers (ISPs) choking off supplies of key networking equipment such as routers, switches, firewalls, modems and customer premises equipment.

One of the effects of the microchip shortage includes longer product lead times with fewer options to choose from. There may be situations where certain products are simply not available anymore. For some ISPs, this could mean selecting a different device than you normally would or for others, it may mean placing large clients on hold until the new equipment arrives.

Some networking devices, such as servers, require more than one central processing unit and the supply of baseboard management controllers, resistors, capacitors and circuit boards is tight. The increase in demand for networking and data centre equipment also resulted in product price increases.

Many ISPs implemented price increases, and data centres may soon follow suit. In the long term, the supply and demand dynamics may reach equilibrium, slightly decreasing costs, and technology transitions could drive market growth.

To meet the ever-increasing demand for bandwidth, most ISPs perform large-scale network upgrades every two to three years, requiring the purchase and installation of equipment that relies on semiconductors. Many data centres have been struggling to find switches, and without switches, servers cannot communicate with each another. Data centres frequently serve multinational corporations. Services such as healthcare and banking could face disruptions without the switches, routers, and servers that support them. Therefore, it is crucial for data centres to keep equipment functional and up-to-date for businesses to run smoothly.

Microchips are known as one of the most complex components to ever be made by man. First, sand is molten and refined to produce silicon. Next, the silicon is cleaned, melted, and cooled into ingots. The ingots are then cut into wafers and polished before going through a sophisticated procedure to generate chips.

The process is so delicate that making a chip from start to finish takes approximately three months. Experts predict that the equilibrium between demand and supply will take approximately a year to return to normal (by the end of 2023).

The supply chain will face pressure in the coming months and some ISPs may run out of equipment. This could cause delays in infrastructure rollouts, reduced network growth and slow rollout of next-generation networks. In addition, the inability to service end customers will continue to rise due to customer premises equipment shortages and delays in receiving these stocks. This situation could make it harder for providers to attract new customers, replace faulty equipment or launch new products.

At Stem Connect, we take pride in delivering dedicated connectivity solutions and ultra-reliable services, microchip shortage or not. This is evident from our recent project which combined connectivity, SD-WAN and advanced firewalls. We installed an integrated security SD-WAN network in 360 branches for a local bank, all in record time.

Contact us for all of your connectivity requirements.