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Omicron exacerbates component supply chain constraints

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Many South African firms have been forced to cancel or put their IT projects on hold, as the fourth wave of COVID-19 further exacerbates the electronic component shortage and supply chain constraints.

Over the past year, the pandemic has put enormous pressure on supply chains across the globe, amid the increasing demand for a range of computing products, including the power chips that manage power consumption in mobile phones and semiconductors, which are the essential building blocks used to make computers and gaming consoles.

This led to a significant shortage of electronic components across the globe, with the world’s largest electronics manufacturers confirming that supply chain issues are expected to linger until the first quarter of 2022, resulting in skyrocketing prices, as a knock-on effect takes its toll.

Industry pundits tell ITWeb that the scarcity of ICT goods locally is not expected to end any time soon, noting the fourth wave will lead to a perfect storm of disruptions that could take longer than forecast to resolve, resulting in further price increases.

Arthur Goldstuck, MD of World Wide Worx, notes the travel restrictions brought about by the Omicron variant will result in SA’s trading partners constraining their supply routes, further hampering IT supply chains.

“While the president has been very specific about not increasing restrictions within SA, the cancellation of flights by countries like Dubai means that key trading partners are constraining their supply routes. This will result in further exacerbation of shortages of components, not only because those components are in short supply, but shipment opportunities to SA are reduced.”

According to Goldstuck, all delays in the supply of products and infrastructure will result in additional cost for projects that are time-dependent, resulting in a negative impact on companies’ bottom line.

Vaughn Naidoo, chief digital and technology officer at Altron Systems Integration, says the specialist IT supplier has been forced to place its infrastructure sales on back-order as the delivery of goods is delayed.

Vaughn Naidoo, chief digital and technology officer at Altron Systems Integration.
Vaughn Naidoo, chief digital and technology officer at Altron Systems Integration.

“IT infrastructure projects are experiencing massive delays and instead of being further delayed, many projects could simply be cancelled, which results in a loss of revenue and a strained relationship with our customers.

“As a technology company, we may not recognise the sale of the IT infrastructure solutions until it has been delivered and invoiced. We are able to close the sale but are currently unable to deliver the equipment and this therefore prohibits us from invoicing customers.

“Due to this, all these sales are placed on back-order, which affects our sales/revenue for this year,”Naidoo points out.

While Altron Systems Integration has been forced to re-organise how it is approaching the current problem, Naidoo notes the company is leveraging its global network to assist local companies in securing infrastructure as quickly as it can, according to their needs.

Data centre setbacks

Earlier this year, China went back into lockdown, placing over 22 million people in quarantine and disrupting manufacturing operations following another wave of COVID-19.

China is the world’s largest manufacturer of mobile phones and computers, exporting billions of dollars’ worth of tech components every year, with Wuhan, known as Optics Valley, supplying a quarter of the world's optical fibre.

In some areas, the decrease in ICT supply was caused by manufacturers re-directing their manufacturing processes to focus on mass-production of personal protective equipment, as demand from governments across the globe soared.

Earlier this year, the supply chain constraints rocked the local smartphone industry, with telcos confirming to ITWeb that local iStores were battling to secure sufficient iPhone stock.

Mark Walker, who leads the vertical market and insights research and consulting practice at IDC MEA, points out the current supply chain constraints are also leading to heavy delays in data centre rollouts and technology refresh cycles at large enterprises.

“The supply chain disruptions have been felt most keenly in the server, PC and notebook and to a lesser degree in the communications infrastructure areas. IT products that are in severe shortage at the moment include graphics processors, especially in the gaming environment and similar technology used for crypto mining. In many cases, major suppliers are prioritising deliveries based on large backlogs,” notes Walker.

While it’s almost impossible to predict how these external shocks will impact the ICT sector, Walker believes that if severe lockdowns are instituted, this could further impact logistics chains in SA, including customs clearances, road freight and air cargo handling.

“External shocks to the system could be caused by Asian factories and fabrication plants not receiving raw materials from which to fabricate chips and completed circuit boards and devices, through to severely constrained shipping and container availability, coupled with in-country freight and logistics challenges.

“There is already an increased cost as demand exceeds supply. This will worsen and intensify the longer these delays occur, which in turn will lead to an inflationary environment and exchange rate implications,” he states.

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