For the first time in many grueling months, there’s a light at the end of the proverbial tunnel. Increasingly, Americans are looking to spend some of their hard-earned $3 trillion in pent-up pandemic savings. The challenge with this post-COVID exuberance is that it’s creating a demand glut that’s beginning to outstrip supply, especially with companies just starting to re-hire their pre-pandemic workforce. Combined with the widely reported semiconductor chip shortage, the IT industry could be facing some cost and supply headwinds even as the virus begins to retreat.

The greatest challenge may come as early as this summer and fall. That’s when most economists believe the global economy (variants notwithstanding) will begin to gather steam, on pace to meet its projected 6 percent growth. This is despite the tragic virus setbacks in countries like India and Brazil. As the world begins to get back to business as (almost) usual, companies will be eager to spend, too. And for many, that spending will come in the form of IT – upgraded infrastructure, new security protocols, new data centers, etc.

When The Chips Are Down

For now, the semiconductor chip shortage might be an even greater hurdle than consumer demand, although the two are very much interlinked. While some optimists suggest no more than a six-month shortage, others like Intel CEO Pat Gelsinger, are on record predicting the shortage will last well beyond 2022.

That’s because demand remains high, and also because only two Asian companies are responsible for the majority of the world’s chip manufacturing. It’s an imbalance that’s been known for years but hasn’t been addressed. COVID-19 has only exacerbated the problem. Additionally, there’s also been a shift in the number of industries that rely on chip technology. Automobiles, for instance, were once principally mechanical industries. Today’s vehicles, however, are essentially complex mobile computers, requiring the most sophisticated technology under the hood.

One measure of the extent of the problem is lead time delay. That’s the duration of time when an order for a chip is placed versus when it actually gets filled. By February of this year lead times in some instances had already stretched to more than 22 weeks, up from about 12 weeks the same last year.

Blockages can appear in other parts of the supply chain, too. For instance, Netherlands-based ASML Holding NV, a manufacturer of chip-making equipment, has a near-monopoly on the photolithography equipment needed to print patterns of chips onto the microchip wafer. For now, the company is forecasting 30 percent growth this year, led in large part by the re-opening of the Taiwan, South Korea and Chinese markets. By comparison, the US and European markets lagged significantly behind as these regions dealt with ongoing COVID resurgence. But that, too, is already beginning to shift and the demand from these regions will follow next. Whether or not ASML Holding can keep up the pace remains an open question.

Additional Bottlenecks in the Tech Supply Chain

As if the chip shortage and consumer demand weren’t enough of a challenge, there are other economic headwinds to address, namely US steel and copper shortages – victims of the same faster-than-expected global rebound afflicting the semiconductor industry.

Here, too, unfilled orders are an important metric. According to data from the Census Bureau, unfilled orders for steel at the end of 2020 were at the highest level in five years, while inventories were near a 3-1/2-year low where the benchmark price for hot-rolled steel hit $1,176/ton, its highest level in at least 13 years. As a result of this consumer dam breaking domestic steel prices have risen more than 160 percent since last August. Likewise, copper prices are expected to average $3.50/lb., a 17 percent increase in earlier forecasts, according to Vancouver-based Canaccord Genuity, an investment banking and financial services company.

Sooner is Better For Critical IT Projects!

From an IT perspective, the multi-faceted supply shortages and demand increases suggest a likely spillover effect. Kelly Communications Systems (KCS) is a brand committed to providing new approaches to improving IT performance, flexibility, and security across the entire organization, and our advice is simple: If you have any projects not accounted for in your current purchase orders, plan well in advance of your required dates. The same advice holds for copper and steel – the sooner the better to lock in product allocation and pricing.

The team at KCS will do its best to mitigate these rising demand/supply shortage challenges. In short, it’s a glut induced rut we’re confident we’ll be behind us soon, as the encouraging post-pandemic news becomes increasingly a global story.

Now that’s a prediction you can bank all your chips on – poker chips and silicon chips alike. If you are in the process of planning your next IT-centered project or need advice on how to proceed, get in touch with a team member at KCS by calling 908-232-1860 or email sales@kelly.net.