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How the Global Chip Shortage is Driving Data Center Projects to the Cloud

As data center hardware lead times stretch out to 52 weeks, companies face the stark choice of either pausing projects or finding an alternative.

When the pandemic forced people home to work, learn and play, sales of laptops, smartphones/tablets and gaming systems—and the semiconductors that power them—soared, along with streaming and other cloud services.

In fact, IDC reports that worldwide semiconductor sales grew to $464 billion in 2020, an increase of almost 11% over 2019. The market will grow to 12.5% in 2021, they say, reaching $522 billion—growth driven largely by consumers, who will continue to purchase digital products, consume data and adopt cloud services at unprecedented rates. 

This demand has pushed the semiconductor industry to the brink as global chip shortages, brought on by labor shortages and the lack of substrates that hold the chip components, threaten to bring key industries to a halt. The sudden increase in demand is also creating a domino effect downstream, impacting hardware lead times for business-critical projects.

Rather than wait on hardware—network switch manufacturers are reporting lead times of 52 weeks!—many organizations are turning to the cloud to accelerate business-critical projects, increase agility and enhance business resiliency.

Reaching a crisis point for data centers, facing a choice

The global chip shortage has now been termed a ”crisis point” by analysts. While production has now largely returned to normal, pent up demand has been exacerbated by increasing volumes of orders from expanding business sectors and sudden spikes in demand for laptops, phones and other devices that facilitate remote work models.

The result has been twofold:  First, a classic macroeconomic squeeze of shortages and rising prices that has hit multiple markets at the same time, from high-end data center deployments to consumer durables. Secondly, it has left the entire supply chain sensitive to shocks, with events from extreme weather to a factory fire in Japan, and US sanctions on China all having an impact. As Intel CEO Pat Gelsinger recently predicted: “It could still take a couple of years for the ecosystem to address shortages of foundry capacity, substrates and components.”

The result is that the shortage of available data center hardware is directly affecting organizations with on-premises IT that need to add capacity for new projects/workloads.

Businesses are therefore left with a stark choice: Pause programs, perhaps indefinitely, or move to the public cloud.

Considering a move to the cloud

The current semiconductor shortage, however, is a solvable issue. One solution is to bring forward purchases of servers and semiconductor-reliant hardware, either with existing capital or through financing options.

But the cloud provides a faster, more cost-effective and temporary (or long-term) fix. With security, maintenance and scalability built in, the cloud is ideal for organizations that can’t get the hardware they need. And it offers plenty of data center capacity. Simply spin up servers with your cloud provider and scale them back when no longer needed—without dealing with the cost penalties associated with on-premises IT.

“It is important to recognize that moving to the cloud doesn’t have to be an all or nothing approach,” comments Toby Alcock, Chief Technology Officer of Logicalis Group. “Logicalis recommends just moving the workloads you need to prioritize staying competitive and keeping up with customer needs until the situation resolves itself. However, it should be acknowledged that there are also complexities to cloud deployments, especially large ones, at both the transitional and operational stages. These mean that organizations should ideally partner with an expert who can firstly help manage the move to the cloud and then offer a continued expert managed service provision.”

Logicalis: Your cloud expert and partner

An expert partner like Logicalis can help assess your existing environment, determine costs and outcomes and provide digital transformation and cloud managed services to ensure success.

With the Logicalis Production Ready Cloud, you can overcome security, governance, cost and capacity challenges using our Microsoft-certified methodology and move workloads to Azure in record time.

Trade wars, supply problems, sanctions and other factors related to the semiconductor shortage are unlikely to go away anytime soon. With the impending challenges, a move to the cloud can help you overcome this unfortunate reality—and stay ahead of competitors who are likely facing the same issues.

Jon Groves is CEO of Logicalis US.