Chips, Supply Chains, and IoT: Challenges for a Post-pandemic World

COVID didn’t just affect our lifestyles, it caused a major disruption of supply chains. Can we learn the lesson to avoid a future crisis? And what role can the IoT play in it?
November 29, 2021
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2020 and 2021 will go down in history for 2 reasons: the COVID-19 pandemic and the chip crisis. Both events had a profound impact on the world of technology, for better and for worse. Ironically, IoT, one of the fields affected by scarcity, is also the key to preventing something like this from happening in the future.

The Semiconductor Shortages

Tech companies have been working under an assumption called “Moore’s Law”  since the 1970s. To explain this law in simple terms, Intel cofounder Gordon Moore predicted that the number of transistors used in electronics would double in quantity every 24 months. 

While not a perfect estimation by any means, it’s been reliable enough. Unfortunately, not even Moore could account for the complete paralysis of the worldwide supply chain like the ones experienced in 2020 thanks to the COVID-19 pandemic.

To be fair, it wasn’t just the supply chains. 2020 was the perfect storm:

  • Semiconductor industries shut down completely for months.
  • The demand for devices exploded as users had to stay confined in their homes.
  • Companies canceled semiconductor orders because many were afraid of the losses caused by the pandemic.
  • Supply ports were closed, which caused delays in deliveries. 
  • Taiwan is living through one of its worst dry spells in history, which limits the amount of water the semiconductor industry can use. 

Not even the most pessimistic models could have predicted just how much went wrong. Things are so dire at this point in time that experts estimate that we won’t be meeting the semiconductor demand until 2023. Funny thing is, we may end up with an oversupply at that point, but that’s an issue for another day.

Semiconductor and Chips

Modern chips are built with billions of transistors (semiconductor devices). Just as an example, Apple’s A11, the chip powering the iPhone X, has 4.3 billion transistors. Consider that by 2018 there were around 50 million iPhone X on the market. You do the math.

Taiwan has a 63% market share of worldwide transistor manufacturing followed by South Korea with only 18% (thanks to Samsung). With such a figure, it’s not an exaggeration to say that the technology infrastructure of the world is carried on Taiwan’s back. 

Imagine that a phone uses 5 chips (we are being conservative here) and remember that different chips are built in different factories. Odds are that the supplies of each individual factory depend partially or entirely on Taiwan.  

Due to shortages, each chip manufacturer is getting fewer transistors than what they need to meet their demand. So they build as much as they can and dispatch to their clients. In the best of cases, all 5 chips arrive and the phone can be manufactured.

If there is a shortage of at least one of the chips then the whole manufacturing process has to be put on hold. It’s easy to see the problem—if one of the chip manufacturers runs out of transistors then you simply can’t make more phones.

What does that mean for the end users? Fewer products that rely on chips: cars, computers, graphic cards, consoles, tablets. Every digital appliance is affected by the current situation.

The State of IoT

All is not doom and gloom. According to IoT analytics, we expect to have 12.3 billion endpoints by the end of 2021, a 9% growth when compared to 2020. Not bad for a field that’s getting particularly hit by the shortage. There might be more repercussions down the line, though, as 2021 projections for 2025 predict only 27.1 billion connections instead of the 30+ billion forecasted in 2020.  

The numbers might still be in flux, but the trends have remained rather stable. IoT is a growing field and one that investors should keep an eye out for. There are plenty of reasons to start developing IoT at this juncture in time.

For one, the shortage will pass sooner or later. If anything, this crisis was a wake-up call about the need to expand, and the big tech players are already responding. Intel announced that they will be investing $20 billion in creating new industries both in America and Europe.

Secondly, whatever society rises from the pandemic as the dust settles down, it’s certainly one that’s going to be more connected than ever. Remote work and remote education are gaining traction, and more people have adopted technology in their daily life. 

Last, but not least, even amidst the shortage and the pandemic, 5G adoption has grown exponentially in 2020 and 2021. Soon it’s going to be a worldwide standard, and with that kind of data transmission, the Internet of Things will gain a ton of momentum.

IoT and AI for Supply Chains

Ironically, the chip shortage might have done more good than harm to the IoT industry down the line. It’s clear that supply systems are in dire need of digital transformation and IoT and AI are 2 fields that can transform supply as we know it.

On one hand, the pandemic, tough as it is, is also a Petri dish of data. We now have information about how supply chains behave during states of emergency. And data can be used to train AI systems and to make better predictions.

On the other, IoT has dozens of areas where it can help with supply chain management, for example:

  • Thanks to environmental sensors, managers can track shipment conditions in real time and proactively react to changes. Situations that can endanger the integrity of the products can be managed remotely.
  • Real-time tracking helps in 2 ways. First, it lets managers make informed decisions about routes. Also, its precise data can later be fed to AI systems to create better delivery routes.
  • Intelligent routes will help with contingency. Supply chains can adapt in real time to weather conditions, emergencies, traffic accidents and, in turn, help mitigate the effects of such eventualities.

As IoT grows new software has to be developed. Companies need to build solutions from the ground up to accommodate the massive influx of data. That’s a challenge unto itself, but one that is well worth the time and effort. Intelligent factories and distribution networks are going to play a big role in the following years.

Who should be paying attention to IoT?

Beyond IoT investors, who should be thinking about implementing IoT? Pretty much everyone, from healthcare, tourism, distribution to software companies, we all have something to gain. 

AI, robotics, and the Internet of Things might not be the solution to every problem. A harsh lesson that the Japanese Henn na hotel learned. But it is clearly a powerful tool that has a lot to offer to us and to society in general. 

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