What the Global Chip Shortage Means for Your Business
Have you seen or heard headlines about the global chip shortage? We don’t often think about the components of our devices, but all of them, from computers to smartphones, include computer chips, among other components. And worldwide, there’s more demand for computer chips than supply. Here’s why that’s happening and how that may affect your business.
Why is there a global chip shortage?
Demand for computer chips has outpaced supply for several reasons. Computer chips have seen increasing demand as businesses have embraced the Internet-of-Things (IoT): a trend in which businesses embed software, sensors, and other electronic components into a range of traditionally non-electronic devices. IoT devices promise businesses and consumers the ability to be completely connected, facilitating everyday activities and business operations. For example, a business in a high-risk industry can improve worker safety measures by assessing data collected from an employee’s IoT uniform or badge.
Some industries are embracing embedded digital technology more rapidly than others. Many auto manufacturers, for example, now base new models primarily on new digital and electronic features. Electric vehicles, which are seeing increased consumer demand, require more computer chips as well. Today’s vehicle has nearly every mechanical component tied to computer technology, with the auto industry being one of several with a growing need for computer chips.
Another reason why computer chip demand has surged? During the pandemic, businesses and consumers purchased a lot of new devices. Businesses had to provide employees with computing tools to work remotely. Consumers spent stimulus checks and other money on webcams, new tablets, smart televisions, and other devices to keep themselves connected to friends and family, help children navigate remote schooling, and keep themselves entertained.
However, as demand soared, supply was depressed by trade policies such as the recent (and ongoing) US-China trade war. As the U.S. enacted tariffs on Chinese imports, Chinese manufacturers stopped focusing on supplying American businesses. And as China enacted retaliatory tariffs on U.S. products, American tech companies had to contract with non-Chinese manufacturers to avoid these high costs. This transition has also resulted in production and distribution delays.
Further, national public health policies have resulted in shipping delays up and down the supply chain across the globe. Industries are also grappling with a precious metals shortage, with many of the metals used to create computer chips scarce. And tech companies have long reported IT talent shortages and high tech worker burnout rates, which have also contributed to the shortfall.
What does this mean for your business?
As with any supply shortfall, the global chip shortage means companies who need computer chips to manufacture their products will face delays and higher prices. If you rely on computer chips, you’ll face higher supply costs and may not be able to produce the same volume of products as you did in previous years. To continue to turn a profit, you may have to pass on these increased costs to consumers. The longer the chip shortage continues, the harder it will be for you to produce affordable products and the harder it will be for consumers to find common computing and computing-enhanced devices for sale.
High-profile product launches like the Apple iPhone 12 Pro have been delayed due to computer chip supply chain issues. And if titans like Apple, with its massive purchasing power and influence, are facing delays, smaller businesses are likely to face even more significant waiting periods. Unfortunately, the chip shortage is expected to last quite some time, since the U.S. and Chinese tariffs remain in effect, business and consumer demand for chips remains high, and pandemic-related logistics challenges linger across the supply chain.
Businesses also should consider how this shortage impacts their business computing plans. For example, suppose a company uses relatively old devices that are past their warranty period and has previously purchased new replacement devices as necessary from a local vendor. Today, they may begin to face excessively high prices. It’s best to replace these devices now if you can because your replacement costs will grow higher and higher as the chip shortage continues.
To learn more about how your company can navigate the computer chip shortage, contact us at Alvarez Technology Group. We can work with your team to secure and obtain the replacement devices you may need now before prices rise. We can also help you deploy cloud-based computing technologies that can make you less vulnerable to the effects of the global chip shortage.