The boss of networking giant Cisco has said the shortage of computer chips is about to last for a few more months of this year.
Many firms have seen production delayed due to a scarcity of semiconductors, triggered by the Covid pandemic and exacerbated by other factors.
Cisco chief Chuck Robbins said: “We think we have got another six months to urge through the short term.
“The providers are building out more capacity. And that’ll recover and better over subsequent 12 to 18 months.”
That expansion of capacity will be crucial as advances in technology – including 5G, cloud computing, the internet of things, and artificial intelligence – drive a big increase in demand.
Mr. Robbins is that the latest tech boss to weigh in on the talk – and with 85% of internet traffic using Cisco’s systems, his opinion matters.
“Right now, it’s an enormous problem,” he says, “because semiconductors enter virtually everything.”
The seemingly insatiable demand is why major US manufacturer Intel announced a $20bn (£14.5bn) decide to significantly expand production, including two new plants in Arizona.
According to Dan Ives, a tech analyst at investment firm Wedbush Securities, the current “demand is probably 25% higher than anyone would have expected”.
Even though the shortage “is getting to be a problem for subsequent three to 6 months”, technology share prices do well because investors are focused on the growing long-term demand for their products.
US President Joe Biden also sees this as a long-term issue and used a White House summit with business leaders this month to urge them to form the country a world leader in computer chips. Amid the trade and technology war with China, the White House says it’s “a top and immediate priority”.
The US-based Semiconductor Industry Association says 75% of global manufacturing capacity is in East Asia. Taiwan’s TSMC and South Korea’s Samsung are the dominant players.
European politicians also want more chips made locally, a view is partly driven by concerns over China’s desire to realize reunification with Taiwan. Meanwhile, China has seen a huge growth in domestic demand for chips to power new technology but has only a small share of global manufacturing capacity.
Mr. Robbins says: “I think that it doesn’t necessarily matter where they’re made, as long as you’ve got multiple sources.”
However, Intel chief executive Pat Gelsinger told the BBC it had been not “palatable” to possess numerous chips made in Asia.
TSMC appears intent on holding on to its position as the world’s biggest contract manufacturer and is spending $100bn to expand capacity over the next three years.
This week its founder, Morris Chang, called on the Taiwanese government to “keep hold of it tightly”, arguing it is better positioned to make chips than the US or China, despite their big government subsidies.
The chip shortage was heightened by the coronavirus pandemic. At first, many companies cut their orders for chips, thinking demand would fall, which led suppliers to reduce capacity. However, demand for consumer electronics rose during the pandemic.
The problems are worsened by a string of other factors, including a fireplace at a semiconductor factory and weather issues.
This, combined with a “generational technological change has created an unprecedented situation for the industry”, consistent with Paul Triolo, who leads the geo-technology practice at consultancy Eurasia Group.
He thinks it doesn’t matter where chips are made as long as there is a diversity of supply. However, the shortages are likely “to persist for a few time” and longer-term solutions are needed to deal with the concentration of producing of semiconductors, which may be a “problem that predates the shortage”.
That is why Mr. Robbins says: “What we do not want is to possess consolidation where any of the risks that we may face could, frankly, end in things we’re seeing today, whether it’s weather-related disaster risks, whether it’s the single point of failure risk, whether its geopolitical risks, whatever those are. We just need more options, I think, for where semiconductors are built.”
Cisco recently completed the $4.5bn acquisition of Acacia Communications, which, among other things, designs computer chips. Mr. Robbins ruled out Cisco using it as a chance to start out making its chips.
“We’re not a semiconductor fab company, so it isn’t a core competency for us to try to do that. So we think that companies that play in this space are much better equipped, we’re working very closely with them.”
The huge cost of chip manufacturing facilities means they operate at near full capacity then it’ll take time to satisfy the increased demand.
The size of that demand “is not clear”, consistent with Mr. Triolo. He says that, like other major technology vendors, “Cisco’s equipment relies heavily on reliable supply chains for a range of semiconductors.”
The shortages, he says, are “exacerbated by companies over ordering components to create up inventory, scared of being caught short again”.