Refurbishing as a potential solution to the shortage of chips

Refurbishing as a potential solution to the shortage of chips
07 Apr 2021

Almost every technical device is equipped with chips: servers, cars, even your fridge. And no, we’re not talking about the kind of chips you eat with ketchup – no shortage of those – but computer chips. Since the start of the pandemic, more people are working from home than usual, and this has triggered a huge acceleration in the digitalisation of the working world. Even the way we use our free time is more dependent on technical equipment than ever before.

IT equipment plays a greater role in our lives today than ever before, and this of course goes hand in hand with the demand for semiconductors and the resulting shortage of chips. This shortage is also affecting the delivery times of network equipment providers such as Cisco and Juniper. In the following article, we explain the background to the current shortages – as well as its consequences – and how you can minimise the effects on your business.

Chips are more in demand than ever

In 2020, the global semiconductor market grew faster than at any time previously in the last 10 years. The reasons for this are obvious – due to the pandemic, more people were forced to switch to working from home and to update their equipment to the latest level. As a consequence, the semiconductor industry experienced a significant jump in demand. However, ramping up microchip production capacity overnight is impossible.

What’s more, it is feared that increasing interruptions to the production process will also have a cumulative negative effect on delivery times. Since production is running at maximum capacity, there is no longer a buffer for any disruption to the production process. This will continue to be a frequent problem for all customers of microchip manufacturers in the future.

Chip capacities can only be increased slowly

The microchip manufacturing process is generally very labour intensive and expensive. Several hundred work steps are needed to produce a single chip. Each step must be performed with great precision in order to make a profit at the end of the process. To clarify: transistor dimensions are measured in nanometres – sizes between 1 – 3 nm are already possible. A human hair is several times thicker. However, an increase in integration density (the number of transistors per unit of area) is not only achieved by making the structures smaller, but also with a sophisticated and optimised layout.

As chips are designed to be used for long periods, they have to be extremely reliable. To ensure this, they must undergo multiple testing procedures. This is why their manufacture can take up to three months. So a chip can’t be ordered at short notice – production capacity is planned months before the actual manufacturing process takes place.

The complexity of production also means that only a few companies in the world are specialised in manufacturing highly complex semiconductors. These include Intel, Samsung and the Taiwan Semiconductor Manufacturing Company (TSCM).

So it’s not possible to build extra factories easily or quickly. New factories are extremely expensive and need years until they are capable of producing at full capacity. However, due to the high demand, companies including Intel and TSCM have announced billion-dollar investments in new facilities.

All industries are affected by the shortage of chips

The shortage of chips is impacting industries across the board: it is not just IT manufacturers who are particularly badly affected, but the automotive industry too. Chips have been used in cars now for several years. The car is not a purely mechanical system, but has developed into an increasingly sophisticated electronic system which requires more powerful computer chips.

In addition to the general boom in demand, the automotive industry is also battling with the consequences of decisions made in the last year. During the first lockdown last spring, some companies significantly reduced production – and also reduced or cancelled their orders for chips. As the market started to normalise again and demand exceeded expectations, production was ramped up and even increased. Now there is a shortage of semiconductor chips – especially for premium class vehicles.

This demand from the automotive industry is in direct competition with that from the communications industry – which is often also prepared to pay more money for microchips.

But IT manufacturers are suffering from the shortage of chips too, because the manufacturers in this industry didn’t predict the boom either. So they are also experiencing delivery bottlenecks. Network equipment providers are also affected in the product groups which rely on high-performance chips. The shortage particularly affects routers, supervisor cards or lineups for modular switches.

The solution: refurbished hardware

According to many experts, the shortage will not end until 2022 at the earliest, when predicted new capacities can be created, or demand has returned to normal. The increase in the price of the chips is expected to continue. So, instead of relying on the production of new microchips, it’s worth taking a look at refurbished equipment. In many cases, this offers better availability and shorter lead times. What’s more, it has the advantage that the equipment has already been thoroughly tested. It’s extremely unlikely that the equipment you receive will be defective. Particularly in the current situation, where replacements are hard to come by, this is an advantage which shouldn’t be overlooked. Reusing used hardware makes more sense from an ecological perspective too. The manufacture of new chips is not just expensive and time-consuming, but also generates huge quantities of CO2. So it’s worth investing in existing systems. Read more about it in our article The 10 biggest advantages of buying refurbished hardware.

Lisa Neulichedl