Global chip shortage and how it can affect the Internet and telecom business

The world is currently facing a period of chip shortage that, according to experts, will only return to normal in 2023. Although historically we have already experienced some chip shortage seasons, the ongoing lack of semiconductor chips may have far more consequences than those caused by past lean periods.

In this article, you will learn everything you need to know about the ongoing chip shortage, and how it can affect the major players in the Internet and telecom network.

What you need to know about the Chip Shortage

A computer chip, also called a semiconductor or integrated circuit, is a small semiconductor component that guarantees the operation of all digital products that we can see around us. In other words, chips are the heart of your computer, smartphone, car, television, virtual assistant, video game console, and much more.

Chips are not only an indispensable part of home appliances, they are also a very important component for large players in the Internet and telecom ecosystem. All computers need chips, from the servers that host content and internet providers, to the internet router that allows you to access Wi-fi service at home.

The chip shortage represents an important risk for large manufacturers since it delays the production and delivery of products for the common citizens who may be impacted by a rise in prices or a delay in the delivery.

What’s the cause?

To understand the magnitude of the ongoing chip shortage situation, what to expect, and how to be prepared, you need to know the cause of this situation. We tell you about it below:

1. Chip production changes due to the pandemic Due to the still ongoing Covid-19 pandemic and global lockdown policies, the automotive industry was affected by low demand and decided to reduce its production levels, as well as the demand for car manufacturing chips. On the other hand, the computer industry and other electronic devices such as cell phones, tablets, and printers had a historical increase as a result of people working from home. Consumers’ buying habits changed and the market was forced to adapt to the new scenario. As a result of this situation, the chip manufacturers decided to change their production lines, without the possibility to foreseeing that the car industry would recover faster than expected, creating an enormous difficulty in obtaining the chips needed to continue production, leading some to call the current crisis “chipageddon.”
2. Low chips supply in the market
   Currently, chip production is concentrated in three companies that dominate manufacturing, these are TSMC, Samsung, and Intel. It is important to note that the last two, Samsung and Intel, are mainly dedicated to supplying the demands of their own products, which leaves TSMC with the majority of chip orders in the world; some of its customers are Apple, NVIDIA, Microsoft, and Qualcomm, as well as all the major manufacturers of networking equipment: Cisco, Nokia, Ericsson, among others. Due to the pandemic and quarantine world policies, the pace of the production line of these companies was also disrupted, so the number of semiconductors manufactured decreased significantly, as well as the delivery time.
3. Trade tensions between US and China
   The limitations imposed by the U.S. government on the Chinese giant Huawei also increased chip shortages worldwide. One of the limitations imposed was that after September 15, 2020, Huawei could not purchase or acquire electronic components with U.S. technology or chips manufactured by international factories that use U.S. systems. In this way, the technology giant accelerated its chip purchasing processes. These sanctions imposed by the U.S. government also showed distrust in other Chinese companies, which led them to anticipate their chip purchasing processes, unexpectedly increasing demand.

How long will the current chip shortage last?

Although there is no way to forecast an exact date, and industries are working hard to make up the supply gap, TSMC itself stated that the chip shortage will last throughout 2022 and only return to normal in 2023.

You may be wondering why don’t chip companies just make more. The semiconductor chip industry is not simple. Although after the crisis, several companies such as Intel and TSMC itself have announced billions of dollars in investments for the creation of semiconductor fabs, the time required for them to start delivering the product is at least 2 years. In order for you to better understand this issue, here is a quick overview of how semiconductors are created.

How a semiconductor chip is manufactured

The main component of the chip is a semiconductor chemical element called silicon, quite abundant on our planet and also responsible for naming the Silicon Valley region.

This production process is precisely one of the almost exclusive specialties of the companies that dominate the market. Manufacturing a chip is an expensive process that can take between 90 and 120 days.

How the global chip shortage will affect the world

Due to the importance of chips in the manufacture of countless products, this chip shortage will manifest itself in different ways for various markets. It is important to note that because of the importance of these tiny switches when the chip supply is reduced, the entire economy suffers.

Rising prices
Responding to the law of supply and demand, the chip shortage will bring with it a rise in the prices of all products or components that use this integrated circuit. Household appliances, routers, switches, and servers are expected to increase in price.

Delay in deliveries
The chip shortage causes a delay in the entire production chain of different industries, especially for the automotive industry, which is one of the most affected. Factories such as Ford announced that due to the chip shortage, production will be reduced by 1.1 million cars, and products such as the latest generation of telephones or video game consoles will be affected.

Product modifications
In order to minimize the impact, some companies have had to modify the design of their products in order to use fewer chips. Another solution put forward by Ford is to continue production of the cars without their chips, and once the chip shortage is recovered, to deliver them to dealerships.

Chip shortage in the Internet and Telecom network

While the shortage has particularly affected the car industry, it is now spreading to other industries. This chip shortage may also impact the systems that make Internet and telecom connectivity possible. Large companies in the telecommunications equipment industry such as Ericsson and Nokia say they have begun to feel the impact on chip delivery times.

Chip shortages can directly impact the implementation of 5G and in general, the development and strengthening of the entire Internet network as everything from small devices such as the home Wi-Fi router to powerful servers and telecom operators need semiconductor chips.

In the United States, for example, some companies implementing 5G have already stated that delivery times will be pushed back and that 5G will not have the expected speed due to chip shortage.

How the telecom industry can prepare to minimize the impact of chip shortages

As the big players in the semiconductor market work to recover from the lag, the telecom industry can carry out some alternatives.

New technologies
This situation can also be seen as an opportunity to think about different alternatives, such as new or creative technologies, performance optimization, and equipment capacity. New inventory forecasting models If you work with technology and telecommunications, it will be very important to optimize your growth forecasting models in order to be prepared and avoid problems with delivery delays.

How EdgeUno is preparing for chip shortage issues
Anticipating the possible consequences of chip shortages, EdgeUno has anticipated investments in network equipment. According to Tiago Setti, director of Network Engineering, the anticipation of the investment was made in order to increase the response time for capacity expansion. Strong investment has also been made in future planning in order to be prepared in advance, anticipating the network expansion for the next 12 months.

Now that you know all about the chip shortage, we recommend you to be prepared and if you have any questions, do not hesitate to contact us.