by Scott Jack
Content Contributor, E-N Computers
7+ years experience in healthcare IT and tech support.
Do you have computers or networking equipment that are due to be replaced? Perhaps you need new hardware for positions you are adding to the company. If so, you may have noticed that some of this equipment can be hard to come by. Lead times to procure IT equipment are longer than they have been in quite some time.
At E-N Computers, we are seeing delays of three to six months when ordering hardware. Because this is a global problem that has the potential to critically impact your business, we want to explain what’s behind it, how long we can expect the situation to continue, and what you can do to work around it. First, let’s look at what is causing the delays.
There are just a few companies responsible for the vast majority of computer chips produced worldwide and they have been impacted by global events including the coronavirus pandemic, disasters, and economic policy. We expect this situation to continue until 2023.
There’s a Microchip Shortage
Unfortunately, one major cause of delays is a computer chip shortage. Demand for chips has greatly increased while supply is particularly constrained. There are only a few chipmakers responsible for the production of most chips, and they have been impacted by global events including the coronavirus pandemic, disasters, and economic policy.
The pandemic created both supply and demand problems for chipmakers. Supply was affected when chip fabrication plants, called fabs, had to close during outbreaks. The supply chain is also suffering from freight shipping delays, so that there is a record-breaking backlog of ships waiting to dock and unload on the West Coast.
As people began working, learning, and spending more leisure time at home, there was skyrocketing demand for consumer electronics and servers. Automotive manufacturers miscalculated demand for vehicles during the pandemic, canceled their chip orders, and are now scrambling to secure any spare production capacity for essential components like power management chips.
Cryptocurrency mining has also added to the shortage by its increased demand for powerful graphics cards. Cryptominers use these cards to perform complex math problems that produce a cryptocurrency like Bitcoin once solved. As the operations increase in complexity and Bitcoin rises in value, miners buy as many of the cards as possible, making them scarce for professionals and consumers.
Another reason for increased demand is the shortage itself. Some finished product manufacturers are stocking up on components because they are nervous about the fragility of the supply chain. This may contribute to a slower recovery than would otherwise occur.
Natural disasters also had adverse affects on chip manufacturers. In February 2021, a winter storm in Texas forced Austin-area fabs owned by NXP and Samsung to rapidly shut down production lines, setting them back weeks. Japanese automotive chip manufacturer Renesas was hit by an earthquake in February and a fire in March. There are also concerns that Taiwan’s drought is or will soon be affecting production abilities of TSMC, the largest contract semiconductor manufacturer in the world.
Economic policy has also contributed to the chip shortage. As part of its trade conflict with China, the United States has imposed export restrictions on capital equipment to SMIC, China’s largest semiconductor manufacturer. This limits the Chinese company’s ability to address the increased global demand for chips by ramping up production capacity. Because fabs require billions of dollars of investment, most run near 100% capacity to maximize returns. It will take time for other manufacturers to increase their capacity.
This confluence of factors means that it will take quite some time to recover from this shortage. Analysts and industry experts anticipate extended lead times until 2023, when additional fabs will come online. In the meantime, what can you do to minimize the impact of the chip shortage on your business?
What You Can Do
There are a few steps you can take to work around the global chip shortage. You can buy stock hardware instead of custom-built, order now based on future needs, and keep spare hardware on hand for disaster recovery. Each of these actions will help make your business less susceptible to the current market situation. How so?
First, order stock hardware rather than customized machines whenever possible. Stock hardware has a shorter lead time than custom-built. Manufacturers usually pre-build their most popular hardware configurations and keep these on hand for quick shipping. Custom-built hardware, though, is much more likely to be delayed because a component is not available or because the manufacturer does not have enough workers to fulfill the order right away.
Second, we encourage you to order now based on future needs. Think about what equipment you will need 6 to 12 months from now. Include desktops, laptops, servers, network equipment, smartphones, and tablets. Are you expecting to add new positions? Do you have old hardware that is due to be replaced? Order the equipment now so that long delays do not disrupt your business.
Third, it is a good practice to keep spare hardware on hand for disaster recovery. If you server or network equipment fails, it may not be recoverable. Without spares, you will be waiting months for replacements. Though you may be worried about the upfront capital expenditure, can you afford the downtime costs if that happens? Determine what equipment is needed for your critical systems and services, then make sure you have replacements on hand.
How We Can Help
E-N Computers helps our clients with each of these steps. We ensure that stock hardware will meet your needs and that any custom requirements are also met. We provide planning and budgeting for new equipment. And we work with you to develop a backup and disaster recovery plan, including recommendations on what to keep on-hand in the event of a failure. All of this is included with our managed IT services.
Our partnership has helped dozens of clients to build a strong IT strategy and improve their competitive position through effective technology use. To help you evaluate the maturity of your IT strategy, we’ve built a free IT Maturity Self-Evaluation tool for you to use. In just 5 minutes, you can see where you stand and receive some concrete recommendations to enhance your business IT strategy.
Next Steps: Learn About Downtime Costs and Disaster Recovery
In this article, we recommended three steps for minimizing the impact of the chip shortage on your business. They were 1) buying stock equipment, 2) ordering well in advance, and 3) having spare equipment on hand for disaster recovery. All of these measures are aimed at avoiding technology-related downtime costs. Calculating the cost of downtime for your business can help you decide how much to invest in spare equipment and other backup and disaster recovery (BDR) measures. Our Cost of Downtime article will help you in calculating your risk.
Having spare equipment is just one part of a comprehensive BDR plan. In The Ultimate Guide to Backup and Disaster Recovery, we cover what to consider when to creating a backup and disaster recovery plan. We’ve provided some example tiers of recovery plans and what you can expect to invest, as well as a downloadable template to get you started.
Is your business ready to weather changes, including employee turnover? Find out by taking our IT maturity assessment.
You’ll get personalized action items that you can use to make improvements right away. Plus, you’ll have the opportunity to book a FREE IT strategy session to get even more insights into your IT needs.