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'It's Little Things' – How the Chip Shortage Is Affecting the Data Center Industry

May 26, 2021

No industry has been pummeled by the global chip shortage like the automotive industry, but few haven’t felt any pain. So, how has the pain manifested in the data center industry, which exists solely to ensure computer processors can go on crunching numbers, uninterrupted?

The supply of server CPUs looks steady – mostly because they produce more profit for chip manufacturers than their other products, so they’ve been prioritized. Things look bleaker in other industry subsectors. Network-switch vendors are dealing with extraordinarily long silicon lead times, leaving their executives trying hard to convince stock analysts of their ability to source enough to meet their revenue forecasts for the year. Companies across the board have been spending a lot more time and money than normal on supply chain management. One large power and cooling infrastructure equipment vendor said it will likely pass this extra cost to its customers.

As the pandemic drove most of the developed world to work, study, and play remotely, from their homes, demand for personal computers and servers underneath all the digital services skyrocketed. Meanwhile, chip manufacturers, like everyone else, had to learn how to operate with COVID-19 running wild. Chinese companies, fearing that trade tensions with the US might lead to sanctions, have reportedly been overbuying and stockpiling chips. Others, as typical in a period of shortage, have been trying to build larger stockpiles too, artificially making the bottlenecks even worse.

Protecting their businesses, chip foundries focused on pleasing customers that bring the most profit.

“Silicon for the data center provides good margin for the fabs compared to more commoditized silicon, which is power electronics or any other segment,” Manoj Sukumaran, senior enterprise IT analyst with Omdia, said. While server and PC sales spiked, some car makers delayed orders in the first half of last year, not knowing what the pandemic would do to their demand, he explained. So, chip fabrication companies like TSMC, Global Foundries, and Samsung Foundries prioritized high-margin orders from data center and PC customers and “basically sidelined” everyone else.

‘It’s Little Things’

That’s not to say that server chip vendors have been unaffected. While there haven’t been major issues with server CPU silicon wafers, other components necessary to put together a CPU are in short supply, and even giants like Intel and AMD have had to make operational changes and spend money on mitigating the situation.

Servers themselves require more than CPUs, of course, and supply of everything from BMC chips down to resistors, capacitors, and circuit boards is tight, Sukumaran said.