How the Supply Problems on Chips Delays IoT implementation

The popularity of IoT devices surged to unprecedented levels at the height of the COVID-19 pandemic. Thanks to lockdown measures and remote working, technology instantly became the go-to method to stay connected. People spending more time at home than ever turned to online gaming as the primary form of entertainment and uncovered new needs like air quality monitors and automatic light switches.

Besides consumer-centric use cases, the pandemic also considerably impacted other IoT segments. For instance:

This disruption created a greater-than-ever demand for IoT devices and systems. As a result, by the end of 2020, one billion new connected devices had entered the global IoT ecosystem.

However, the booming demand and positive sentiment in the IoT market ushered in a biting electronic chip shortage that left many companies struggling to keep up with production requirements.

According to a Forrester study, more than 80% of manufacturers reported facing challenges in producing digital products and services in 2021. A more recent report by IoT Analytics reveals that, while IoT connections are still multiplying, growth has slowed significantly in the last two years.

Industry experts expect the chip shortage and related shakeups in the IoT sector to last well beyond 2023. Even as the pandemic eases, factors like the prevailing inflation, the Ukraine war, and the shortage of digital talent will continue to impede global production in the short term.

Therefore, if you are planning any IoT project, it is essential to factor in the current chip shortage and be prepared for potential delays.

Read on for a deep dive into the ongoing chip shortage, its impact on IoT implementation, and how you can better position your business to weather the storm.

What caused the chip shortage?

The global chip shortage was a direct consequence of the increased demand for electronic devices during the COVID-19 pandemic. According to the Semiconductor Industry Association (SIA), global semiconductor sales reached a record high of $419.7 billion in 2020, up 21.6% from 2019.

Most of this demand came from the consumer sector as people increasingly relied on tech to stay connected and entertained while isolated at home. For instance, global PC shipments increased by 11%, the highest annual growth in a decade. The trend was even more evident with gaming consoles and wearables, which recorded 36% and 28% sales growth, respectively.

However, it wasn't just the increased demand for electronic devices that caused the chip shortage. The pandemic also disrupted the global supply chain, making it difficult for manufacturers to keep up with production.

For instance, car assembly plants had to close down for extended periods when workers fell ill with COVID-19. These shutdowns impacted not only the production of vehicles but also the semiconductors that power them. Similarly, factories in China, a central semiconductor manufacturing hub, were shuttered for weeks at the start of the pandemic, further disrupting production.

Additionally, the pandemic hindered the flow of raw materials needed for semiconductor manufacturing. For instance, the lockdown in China led to a shortage of chemicals like hydrofluoric acid, which is used in producing semiconductors.

These factors came together to create a perfect storm that has led to the current chip shortage.

How is the global chip shortage affecting IoT?

Because of the ubiquity of semiconductors, the ongoing shortage has been felt across all industries. However, the supply turmoils have been particularly harsh on the IoT sector.

Below are 3 significant ways the chip shortage has impacted IoT implementation.

1. Skyrocketing prices

One of the most immediate impacts of the chip shortage has been the price of semiconductors. For example, DRAM chip prices, which are used in PCs, laptops, and servers, increased by almost 50% in the first eight months of 2021. The cost of NAND chips, which are used in solid-state drives and other storage devices, also increased by double digits.

These price hikes have made it difficult for IoT device manufacturers to keep their products affordable.

2. Production delays and cancellations

The chip shortage has also led to supply upsets and production delays for IoT device makers. For instance, the scarcity of chips has forced some companies to scale back production or prioritize some product lines over others.

The shortage has also led to delays in new product launches. In some cases, these delays have been so significant that manufacturers have had to cancel products entirely.

3. Difficulty securing funding

The semiconductor shortage has made investors skittish about putting money into a shaky market. With the increased risk and cost of developing new products, many investors are steering clear of IoT altogether. This lack of funding has made it challenging for startups and small companies to get their products off the ground.

How can IoT businesses navigate the chip shortage?

The chip shortage has created a challenging environment for IoT developers and suppliers. Nevertheless, with some out-of-the-box thinking, companies can cushion themselves from the impact and stay afloat.

Here are a few suggestions for how your IoT business can navigate the current landscape:

1. Look for alternative suppliers

If you are experiencing chip supply constraints, start by branching away from your usual pool of suppliers. Registering on an online marketplace like IoT2Market can be the best way to connect with new suppliers from around the globe, so you can get the components you need to keep production moving.

2. Use lower-cost components

Sometimes, using lower-cost components in your products may be possible without sacrificing quality. For example, you may be able to switch from DRAM to SRAM or from NAND to NOR flash memory. Although this option may not be viable in the long run, it can help you survive and protect your market share in the short term.

3. Modify your product designs

Another way to work around the chip shortage is to create designs that reduce your reliance on scarce components. Simplifying your products and using more readily available materials can help you get your products to market faster than the competition.

4. Invest in inventory

Investing in inventory can be a good way to secure your company's future if you have the cash flow. By stocking up on chips and components, you can avoid production delays and keep your products in stock. However, this approach is not without risks, as prices could continue to rise, or the shortage could drag on for longer than expected.

5. Increase supply chain visibility

Finally, use technology to track your inventory levels, monitor shipments, and price fluctuations, and communicate closely with your suppliers. That way, you can anticipate disruptions and change your plans as needed.

The chip shortage is a complex problem that will continue for the next few years. While no easy solution exists, you can take the steps discussed above to mitigate the impact of the shortage. By being proactive and adaptable, you can avoid production delays and keep your projects on course.

Struggling to get a reliable supply of IoT components? Create a free IoT2Market user account and get all the parts you need for a timely and successful product launch.