WOOF! Newsletter

January 11, 2023

What's the Status of the Semiconductor Shortage? January 2023 Update

Are we still in a chip shortage? It's complicated. Market conditions in 2022 went haywire, disrupting every aspect of the computer industry. The good news is businesses can look forward to deals on IT hardware...if you act soon.

TIME TO READ: 4 MINUTES

 

We suffered an extreme chip shortage for the past 2 years due to pandemic-related shutdowns and unexpected emergencies. (Read our 2021 article for more details.)

The world's biggest producers (China, Taiwan, South Korea, USA) couldn't make enough semiconductors—the brains in almost everything.

2022 made it worse...which we'll cover in this WOOF. IT hardware procurement is in a difficult place now. But here's the good news—2023 may change that!


Factor 1: The World Responds to the Chip Shortage

Once the chip shortage hit, whole industries & governments reacted.

They planned for more development. They sought more investment for new chipmaking facilities, many of which they'll place in the U.S. Dell has even announced it will move away from using chips made in China, to diversify its own supply chain.

Here's a list of manufacturers aiming to build & open new facilities in (roughly) the next 2-5 years.

Sounds great, right? Plenty of chipmaking for the world's hardware. Except 2022 threw a major economic wrench in the works.

 

Factor 2: Inflation Ruins the Party

You already know this, but inflation hit everyone hard in 2022. By the end of the year, we could see its effects on chipmaking.

The semiconductor manufacturing process contains a lot of steps. Turning the whole process off—which is what happened to trigger the shortage in 2020—means you have to spend a lot of time turning it back on.

In 2022, manufacturers had completed that effort, and resumed making more chips. Then inflation took a swipe at the economy.

Inflation drove prices up on almost all electronics, particularly technical hardware like smartphones, networking routers, laptops, and servers.

This led directly into Factor 3...a serious curb in demand.

 

Factor 3: Demand Drop-Off

The shortage compelled many businesses to hold off on buying new equipment. (Much of the time they just couldn't get anything!)

Consequently, the used market exploded. When all you can find is used, that's what you buy.

Add inflation's tidal-wave effect here. New equipment began trickling out in 2022, at higher prices due to limited component supply, but people couldn't afford the new prices.

 

The Result: Chip Shortage Turned into a Surplus…Temporarily

Because of these factors, as of January 2023, some chipmakers have extra inventory!

Micron Technology's even laying off staff going into 2023, citing a "chip glut."

Does this mean the shortage is over? No, for two reasons:

First, some chips are still hard to get, depending on the type. The industry sorts semiconductors by a size rating in nanometers – 14nm, 10nm, 7nm, etc. The smaller the number, the faster & newer the chip.

The surplus we see comes from chips made at lower/larger sizes, like 14nm and 10nm. These chips work fine for most IT hardware, of course, which is where they'll turn up.

Many of the new facilities will make chips at 7nm and 3nm…because most facilities in the world today can't. Yet the world needs more of these chips for the newest laptops and networking equipment. That's a mismatch, and one which will cause supply issues until the new U.S. chipmaking facilities come online.

Second, the surplus is temporary. And here's where businesses benefit.

 

Seize the Opportunity for Better Hardware Procurement This Year

To offload extra inventory, chipmakers will need to offer deals. Industry experts suggest we'll see deals on computers, servers, and accessories between end of Q1 2023 and end of Q2 2023.

This is all brand-new hardware, featuring current semiconductor technology, so it's perfect for business use.

Now's the time to take inventory of your current workstations, servers, and networking equipment. Is anyone on an old computer? Replace it! Do you have an aging server? Now you can source a brand-new one!

Here are some rules of thumb on IT hardware lifespans:

  • Replace workstations at 3 years. Includes desktops, laptops, and phones.
  • Replace servers at 5 years.
  • Replace network equipment at 6-7 years.

The chip surplus and any resulting deals won't last beyond 2023. As indicated, newer hardware will demand newer chips, which bangs into a supply mismatch. The existing manufacturing facilities can't make those chips, and new facilities which can haven't opened yet.

2023 will be a year of change...hopefully good change! We hope this "Deal Heads-Up" is the first of many useful newsletters you receive.


Need some new equipment? Contact PlanetMagpie for procurement help at info@planetmagpie.com.

 

 

Robert Douglas, IT Consulting Team Lead

consulting@planetmagpie.com