The shortage of semiconductor computer chips is leading to higher prices and longer wait times for products—if buyers can get them at all.
While the impact of the global chip shortage can be an inconvenience for consumers, its impact on businesses is far more acute. Businesses cannot fill orders, finalize deals, outfit newly on-boarded employees with the equipment they need and are generally being forced to find workarounds for a host of issues many never anticipated.
“We are impacted substantially,” said Elizabeth Tluchowski, CIO and CISO of World Insurance Associates, a multi-line insurance agency with 137 offices and 1,400 employees spread out across the U.S. “We’re really, really, struggling, like many people … until this situation is remedied.”
The challenge Tluchowski faces is keeping up with the organization’s highly-aggressive growth strategy. Like everyone else in the early days of the pandemic, she struggled to find enough laptops and other tech to set up employees with home offices. Things haven’t gotten much better since. She still can’t find the servers, laptops and PCs to move newly acquired agencies (as many as eight per month) off of the technology and platforms they had been using and onto the ones World Insurance uses.
“With the chip shortage, we now have to think a little bit out of that box,” she said. “In a given month, we might place an order for over 100 laptops. Now we’re finding, like everybody, that there is a shortage for those devices. We (are) rebuilding, reimagining anything that we have that has enough resources within that machine to access our systems, wherever they may be throughout the U.S.”
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Because World Insurance runs most of its operations on a private cloud in their own data center, finding the servers they need to expand their operations is an ongoing battle. Before the chip shortage, they would primarily buy white label servers to add capacity. Now, they, like so many others, are sourcing servers from wherever they can find them.
Many manufacturers are in the same boat, said Jens Gamperl, CEO of Sourcengine, an online marketplace for electronic components. Gamperl’s customers are scrambling to find chips from any source—regardless of whether or not the supplier and its products have been vetted or not.
“I’ve been doing this since ’83,” he said. ” I have never seen something like this before. The most dangerous part is the more desperate the buyer gets, the more open he is to non-traceable sources. All of a sudden, they say, ‘I’ll take whatever I get and I really don’t care where it comes from.'”
To ensure some sort of quality control, manufacturers are asking Sourcengine to perform those functions.
Price gouging also is a big issue. Parts that cost pennies pre-pandemic are now going for thousands of times more. “I came across, four weeks or five weeks ago, a situation where a 50 cent part was offered to us for $41,” he said.
For large businesses, these increased expenses shouldn’t have a noticeable impact on the bottom line given the other expenses like travel went to zero, he said. But, for others, like those whose revenues depend on subscriptions, for example, and where the hardware they provide (think a connected exercise bike or a streaming media player) is just a way to get subscribers, these expenses will be harder to pass on or absorb.
Also, the shortage of chips is not uniform across the board, said Gamperl. Chips that do not require advanced manufacturing techniques or a high degree of quality control and testing, such as those used in the automotive industry, are more abundant.
“If you look at the computer that we have in front of us, we have no issues with processors,” he said,” … but we need memory. If you go to automotive, that is also a different ballgame.”
According to Glenn O’Donnell, a Forrester vice president and research director, even though some chips are in more demand and, therefore, harder to find, the shortages are systemic. This is extending buyers’ refresh cycles as they make do with the equipment they have or pay higher prices even on large orders where discounts used to apply.
“You’ll usually amortize that equipment over five to seven years,” he said. “And, by seven years, the thing is pretty much a boat anchor. But people still have to squeeze every ounce of capacity they can out of this stuff now.”
Buyers also are reacting by accelerating cloud adoption, said O’Donnell. The big public cloud providers, who get preferred treatment from chip makers and build their own servers at scale, are not experiencing capacity issues.
Because chips go into everything from lightbulbs to spacecrafts, it likely will be two-years “before we even see this start to get better,” he said. In the meantime, if farmers can’t get chips to keep their equipment running and manufacturers can’t get chips to put into their products, prices for commodities and consumer goods will likely go up.
“Because the chips are so central to everything … the impact on the economy could be monumental, it really could,” he said ” I’m not a fear monger … but as I look at the potential scenarios, if we don’t fix this soon, we can have a big problem on our hands.”
O’Donnell is currently conducting research to get a handle on just how extensive the chip shortage is.
Not all the impacts are bad, however. If you are a cloud provider, for example, the impact of COVID-19 chip shortage has been good for business.
Sourcengine’s business is double what they had anticipated. So much so that Gamperl is working hard to combat employee burnout as they deal with the dual challenges of working from home and trying to fulfill thousands of unanticipated orders without any products.
“You know what my number one issue is?”, said Gamperl. “I should be happy … but my people in accounts payable are exhausted, my people in accounts receivable are exhausted, my people in the warehouse are exhausted, my buyers are exhausted and my salespeople are exhausted. Everyone who should be happy is at the limit.”