How does Global Chip Shortage Affect Photonics and Telecom?

The global chip shortage caused by the COVID-19 epidemic affects more than 100 sectors. And, while the worldwide chip shortage has as hard struck no industry as the car industry, few remain unscathed. So, how much of an impact is the chip shortage having on the photonics and telecom industries? How are the photonics and telecom industries dealing with the chip shortage? When will it all come to an end? This essay will discuss these questions with you.

What is a semiconductor?

A computer chip, also known as a semiconductor or integrated circuit, is a collection of electrical circuits printed on a conductive substance, often silicon. They are the physical building components needed to construct computers and operate the software. Chip designers have crammed more and more circuits into smaller places throughout the years, improving the speed and cost of computers considerably. However, minuscule sizes and intricate designs have laid the ground for the current scarcity.

According to a BBC study, silicon fuels a $500 billion semiconductor business. According to the paper, the chips power a $3 trillion global technological sector. Raw materials for the semiconductor industry are primarily sourced from Japan and Mexico, while chips are produced in Taiwan, China, and to a lesser extent in the United States.

What is the global chip shortage?

Chips are incredibly significant in our lives because they are found in anything that needs to calculate or process information. The chip shortage is the outcome of the COVID-19 epidemic, which increased demand for personal electronics such as cell phones and laptops to the point where supply could not keep up, resulting in a global chip scarcity.

While the United States leads the world in semiconductor development and sales, accounting for 45 percent to 50 percent of the worldwide bill, manufacturing has gone to Asia. Taiwan and South Korea account for 83 percent of global processor chip production and 70 percent of memory chip production, respectively, and the region’s dominance is anticipated to grow further. Taiwan dominates the foundry sector, notably Taiwan Semiconductor Manufacturing Co., or TSMC, which accounted for 54% of total worldwide foundry revenue last year.

For the photonics and telecommunications industries, the chip shortage issue is exceptionally severe, and most network equipment manufacturers are affected. As a result, even some optical transceiver manufacturers have experienced purchase delays and significant project delays. It is not good news, but the severity of the shortfall varies by area and enterprise.

How did the global chip shortage happen?

The Covid-19 epidemic is nearly entirely responsible for the chip shortage. More people are being forced to work from home as a result of restrictions all around the world. As a result, computer sales have climbed by 11% year over year, increasing chip demand. Supply shrinks as demand grows. Due to social alienation laws, factories are required to run at a lower capacity.

More people are working from home, have routers and high-speed Internet, and use more bandwidth for Zoom conversations, FaceTime chats and streaming various entertainment programs. All of this causes supply disruptions and increases demand, resulting in depleted stockpiles across the board.

Meanwhile, manufacturing ceased during the pandemic, disrupting supply networks that relied on one or more of these items. Chip manufacturers increased production capacity to meet the growing demand for devices like cell phones and laptops while the car industry nearly shut down last year. Because many chip orders were placed in advance, manufacturers could not return to pre-pandemic manufacturing schedules to meet demand across all sectors. The chip shortage has worsened as a result of it.

How to buy photonics and telecom hardware during the chip shortage?

The global chip shortage is causing problems for the photonics and telecom industries, with longer lead times and dramatic cost increases. To address the chip shortage challenge, OPTCORE recommends that photonics and telecom companies take several proactive steps below to help minimize the impact and keep operations on track.

• Ahead Planning and Forecasting

The primary method that the photonics and telecom industries sellers may employ to mitigate the impact of chip shortages is to plan ahead of time. While no single parameter can anticipate how a chip shortage would evolve, a mix of relevant indicators can assist properly guide an organization. If you expect to need the technology within the next 6 to 12 months, consider ordering it as soon as it becomes available – otherwise, you will be at the front of the line when the firm completes its production backlog. Collecting things when they are urgently required allows you to obtain the technology you need without having to compromise or accept extended delays. It is unusual for many businesses and individual consumers who are accustomed to “just-in-time” technology purchases.

• Be Prepared for Some Delays

Even if you place an order right now, the execution may take longer than anticipated. Plan for delays whenever possible. Not every order is something you can expect. Discuss the schedule with your vendor and create appropriate expectations for your users. You will have the most up-to-date information if you know where you are in the line, open communication, and check continuing progress. When possible, practice and advise patience.

• Be Flexible

When chip supply is disrupted unexpectedly, it’s better to have a backup plan in place ahead of time. It’s difficult to predict what problems will arise and when, but there will undoubtedly be disruptions. As a result, suppliers and corporate purchasers in the photonics and telecom industries should maintain enough flexibility to prevent the negative consequences of chip shortages.

• Diversification of Suppliers

Multiple procurement sources should be considered, and while selecting chip partners from various sources will take more time and effort, it will go a long way toward decreasing operational risk. Furthermore, strategic and intimate connections with distributors, resellers, and traders can aid in acquiring small amounts of critical components.

• Determine the Ideal Order Quantity

Companies that want to assure a consistent supply of chips should alter their order quantities internally to be cost-effective. Chip shortages have resulted in decreased order amounts (lower volume leverage), compounded by higher transportation costs (the global container index rose 68 percent between June and September 2021). It is an excellent opportunity for businesses to enhance their procurement processes to ensure that they are future-proof. Short-term lessons should be applied to develop a more flexible and robust chip sourcing process.

Conclusion

It is unclear when the global coronavirus epidemic will end, and the newly discovered Omicron variant adds uncertainty. As a result, it’s difficult to estimate when the global chip scarcity will end. Perhaps chip scarcity will become the new normal. Just like Omdia’s Galabov stated, “Even 2023 is probably too far in the future. I’m skeptical about the 2023 capacity release. it has the potential to become the new normal.”

OPTCORE, a provider of optical interconnect solutions and services, has been actively working with customers to help them plan for, adapt to, and overcome chip shortage challenges to reduce lead times and maintain reasonable costs to mitigate supply chain issues.