A combination of factors like the pandemic disrupting global supply chains, stay-at-home orders increasing demand for consumer electronics, and EV adoption have all created a perfect storm for chip demand and especially supply of MCUs.
The tech sector is bearing the brunt of current supply chain shortages. Due to the pandemic microcontrollers (MCUs) are few and far between with 80% of global manufacturers facing challenges in producing digital products and services. Now, the situation is further exacerbated by the war in Ukraine, a country that produces crucial metals for microchip production.
The global chip shortage is affecting us all, from price increases, shortages and queues for automobiles, graphics cards, video game consoles, computers and more. Worse, it’s not only impacting the way tech is consumed, but how it’s made.
Tech companies trying to get around the issue are redesigning their products to use other available hardware components. The result is producing the same products with the same features but from different materials. In essence, it’s a huge waste of research and development (R&D).
Let’s dive into how the ongoing microcontroller shortage is sinking tech innovation.
Supply chain headaches and hardware shortages
The start of this decade has created a perfect storm for chip demand. First and foremost, the coronavirus pandemic disrupted global supply chains and forced the closure of multiple semiconductor factories in Asia. Then, to make matters worse, consumers under stay-at-home orders began to increase their investments in smart home devices and electronics. Coupled with the surge in electric vehicle adoption – which accounts for approximately 10% of chip demand – many manufacturers soon found themselves with far more demand than the available supply of MCUs.
Two years after the initial pandemic shock and the shortage continues to reverberate throughout the industry. Each link of the global supply chain remains extremely disrupted and there are no signs of recovery in the near term. Forrester predicts the chip shortage won’t be resolved fully until mid-2023. As a result, tech companies find themselves trying to meet sky-high demand amidst fierce global competition and strained supply chains.
Efforts to redesign and reprogram
New product design and development is often a crucial factor in the survival of a company. In a global industrial landscape that is changing fast, firms must continually revise their design and range of products. The chip shortage, therefore, adds a degree of difficulty to a process that can make or break longevity.
This pressure for innovation is certainly felt in the internet of things (IoT). The average US household will soon have 20 internet-connected devices with consumers demanding easy-to-use gadgets with new, exclusive features. Moreover, these consumers expect that such devices will work together seamlessly across different platforms and operating systems. Due to these demands, eight in ten device creators report that they need to rapidly manufacture new smart products and services to maintain or grow their market position – meaning, in most cases, that a new cycle of R&D is necessary.
But here’s the problem. Consumers want the latest and greatest while vendors scramble to produce the same-old products. Instead of innovation, many companies today are redesigning their products to circumvent the shortage. Consider that R&D teams are switching parts, changing designs and experimenting with new methods to work around the lack of chips. The result is not creating a product that is better or smarter, but merely something that functions as intended. In doing so, device creators then need to maintain two different firmwares: one for the previous MCU and one for the new one.
Moreover, hardware is not the only thing in short supply for IoT companies. Manufacturers are facing a serious shortage of manpower to come up with new ideas. It is thought that three-quarters of organizations are reported to be struggling to hire enough developers to kickstart a fresh R&D cycle. What’s more, with such high-stakes targets relying on a small pool of employees, being a developer in the IoT industry at the moment means complex processes and tight turnarounds. In fact, more than 90% of decision-makers said that they were concerned about their developer wellbeing.
No easy fix for innovation
In my view, the full impact of this supply chain crisis remains to be seen. Looking once again at how the worldwide chip shortage affects IoT, it’s not good enough to swap out parts and consider it a solution. Doing so ignores the reality of this moment. For example, IoT devices are especially vulnerable during this shortage because they generally use mature sensor, microcontroller, and communications technologies that have significantly more availability issues than advanced chips like CPUs and GPUs. It is for this reason that Forrester predicts the ongoing global chip shortage will limit IoT growth by 10-15 percent in 2022.
Innovation is the lifeblood of capitalism with new products leading to increased productivity and stronger economies. Without effective R&D, companies must rely on strategic alliances, acquisitions and networks to tap into the innovations of others. But what happens when the vast majority are trying to redesign their old products rather than create new ones? We will soon find out. In 2020, the overall investment in R&D of companies in the EU decreased for the first time in 10 years. Some tech commentators believe we are yet to see what this will mean for long-term gross domestic product.
The best advice for tech companies in this dilemma is to innovate as best they can. Yes, some thought will be needed to redesign products and avoid shortages, but this should not come at the cost of ongoing product experimentation. This shortage, like all other shortages, will end. It will be those companies who can balance necessary redesigns with genuine innovation that will be best positioned to lead tomorrow’s market.
This article was originally published on Embedded.
Carsten Rhod Gregersen is CEO and Founder of Nabto, a P2P IoT connectivity provider that enables remote control of devices with secure end-to-end encryption.