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Fixing the Supply Chain

Almost everybody in the broadband industry is now aware that the industry is suffering supply chain issues. ISPs are having problems obtaining many of the components needed to build a fiber network in a timely manner, which is causing havoc with fiber construction projects. I’ve been doing a lot of investigation into supply chain issues, and it turns out the supply chain is a lot more complex than I ever suspected, which means it’s not going to be easy to get the supply chain back to normal.

One of the supply chain issues that is causing problems throughout the economy is the semi-conductor chip shortage. Looking at just this one issue demonstrates the complexity of the supply chain. A similar story can be told about other supply chain issues like fiber and conduit. Consider all of the following issues that have accumulated to negatively impact the chip supply chain:

  • Intel Stumbled. Leading into the pandemic, Intel stumbled in its transition from 10-nanometer chips to 7-nanometer chips. This created delays in manufacturing that led many customers to look to other manufacturers like AMD. Changing chip manufacturers is not a simple process since a chip manufacturer must create a template for any custom chip—a process that normally takes 4–6 months. Chip customers found themselves caught in the middle of this transition as the pandemic hit.
  • Demand for Specific Chips Changed. Chipmakers tend to specialize in specific types of chips, and they shift gears in anticipation of market demand. Before the pandemic, the memory DRAM and NAND chip makers had curbed production due to declining sales in smartphones and PCs. When the pandemic caused a spike in demand for those devices, the chip makers had already changed to producing other kinds of chips.
  • Labor Issues. Chipmakers were like every other industry with shutdowns due to COVID outbreaks. And like everybody else, the chipmakers had labor shortages due to workers who were unable or unwilling to work during the pandemic.
  • Local Issues. Every industry suffers from temporary local issues, but these issues were far more disruptive than normal during the pandemic. For example, an extended power outage crippled Taiwan’s TSMC. A fire knocked out a factory of auto chipmaker Renesas.
  • A Spike in Demand. One of the consequences of the pandemic has been a huge transition to cloud services. This caused an unexpected spike in chips needed for data centers. Rental car companies maintained revenue during the pandemic by selling rental car stocks—the crunch to replace those rental cars is creating more temporary demand than the industry can supply.
  • Trade War. The ongoing trade issues between the U.S. and China have caused slowdowns in Chinese manufacturing. One estimate I saw said that as many as 40% of Chinese factories were shut during the peak of the pandemic.
  • There is a global shipping logjam. Getting shipped items through ports is taking as long as six weeks due mostly to labor shortages of port workers, ship crews, and truckers. This doesn’t affect just the final chips being shipped but also the raw materials used to make or assemble chips.
  • Raw Material Shortages. The world has tended to lean on single markets for raw materials like lithium, cobalt, nickel, manganese, and rare earth metals. The Brookings Institute says that pandemic has caused delays and shortages of thirteen critical metals and minerals.
  • Selective Fulfillment. Overseas chipmakers like Netherlands’ ASML, Taiwan’s TSMC, and Korea’s Samsung chose to satisfy domestic chip and regional chip demand before global demand in places like the U.S.
  • Receive-as-Needed Logistics. Over the last decade, many manufacturers have changed to a sophisticated manufacturing process that has materials and parts appearing at the factory only as needed. I recall manufacturers that bragged about having components delivered only an hour before use on the factory floor. Anybody using this logistics method has been stopped dead during the pandemic, and many companies are reexamining logistics strategies.

I suspect this list is just touching the tip of the iceberg and that there are probably a dozen more reasons why chips are in short supply. Unfortunately, every major industry has a similar list. It’s not going to be easy for the world to work our way out of all of this because the problems in any one industry tend to impact many others. I’ve read opinions of optimists who believe we’ll figure all this out in 2022, but others who say some of these issues are going to nag us for years to come.

By Doug Dawson, President at CCG Consulting

Dawson has worked in the telecom industry since 1978 and has both a consulting and operational background. He and CCG specialize in helping clients launch new broadband markets, develop new products, and finance new ventures.

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