How will CPU shortages affect small businesses?

TimeChi, a startup focus and productivity device, received eight times the funding it requested in 48 hours on Indiegogo. Normally, that's cause for celebration. Yet, founder and CEO Sean Greenhalgh was faced with the dilemma of how to get a crowdfunded product out to hundreds of backers across the globe during a global chip shortage, on top of a pandemic that has closed  borders around the world.

"We set off to kickstart our hardware production, [but] unfortunately, the universe had other plans,'' Greenhalgh says. "Even the big names in the business have been plagued by the chip shortage, so one can only imagine how this is affecting smaller companies like ours."

As a result, TimeChi had to manage customer expectations in terms of delayed delivery dates -- which Greenhalgh says led to some cancelled orders. "We needed to ensure we're keeping the cost of our raw materials low in order to make a profit -- let alone break even,'' he says.

The global chip shortage is hitting close to home and will impact pretty much anything with a plug or battery, thanks in part to supply chain woes during the pandemic and the surging demand for chips in mobile devices, according to Forrester VP Glenn O'Donnell.

Small businesses are not immune, but there are ways they can cope.

"Small businesses intersect with chips in two ways. The first is through their point-of-sale (POS) terminals,'' notes Scott Talbott, senior vice president of government affairs at the Electronic Transactions Association (ETA). "As a result of the pandemic, many small businesses accelerated the update of their POS terminals to accept mobile payments, so any chip shortage shouldn't affect these businesses in the short term."

However, if the chip shortage becomes a longer-term issue -- and some industry observers are predicting it could continue for up to two years -- that could delay the delivery of new POS terminals, Talbott says.

Small businesses also rely on electronic payments to run their operations, and they expect payment card transactions to be secure, fast, and reliable, he says. "If chips are in short supply in the long run, however, it could affect consumer's choice of cards, potentially influencing the risk of fraud in a purchase."

Buy now

Talbott recommends that small businesses reach out to policymakers to explain the potential effects of the chip shortage. "They should express the importance of a speedy solution that ensures that the payments industry has a sufficient supply of chips to safeguard the continued integrity and security of the payment system."

As much as this may be an issue, Laurie McCabe, a partner at tech research firm SMB Group, says she is seeing lots of laptops and monitors on sale right now.

"I'd say it's only natural to worry about … things costing more if they're in short supply and small businesses are not immune to that,'' McCabe says. "If you know you're going to need these things, I'd definitely start shopping now."

Consider as-a-service programs, repurposing chips

Small businesses should also consider whether they need to own hardware. A viable alternative is desktop as a service, and it may also be time to think about moving servers and storage to the cloud, McCabe says.

Programs like Dell's Apex infrastructure as a service, for example, enable businesses to run PCs and servers onsite and pay on a subscription basis, she notes. "Infrastructure as a service is definitely a trend. So if you for some reason feel you need that server in-house but don't want to pay the capital upfront, you can get a subscription."

Matthew Putman, CEO of tech manufacturer Nanotronics, has another suggestion for small businesses that rely on chips for manufacturing products. "These companies can optimize manufacturing to reduce scrap of assembly/integration of chips into their products to make sure processes support as close to 100% yield as possible," he says.

Another tactic is to "get creative on re-architecting or engineering products to integrate more readily with available chips if viable,'' Putman says. "Consider repurposing chips/technology from previous-generation products as a near-term substitute. Don't over-engineer products unnecessarily. It is important to make sure that the core functionality is covered for the near term during a shortage."

It is also important to build new relationships and cultivate existing relationships and partnerships with suppliers in order to keep the supply chain close when possible, he adds.

Pondering next steps

As for TimeChi, the startup had a very limited budget to work with and profit margins were tight, Greenhalgh says. "We had calculated our bill of materials -- all the parts we needed to manufacture our circuit boards -- based on normal circumstances, but the unexpected shortage meant we not only had to figure out how and where we could procure them, but we were also faced with exorbitant costs due to the limited supply,'' he says. "It is looking at almost more than double [our] original costs."

The company also needed to reassure its customers that it was able to deliver -- and then had to find trustworthy suppliers who were also able to deliver, Greenhalgh says.  

"Right now, instead of placing a healthy order of additional units to meet future customer purchases, we are battling with the decision whether we should hold off on building more devices at a higher cost per unit with these more expensive chips, meaning a lower profit for us,'' he says.

The other option is to take a risk and hold off on building any additional devices in hopes that the shortage will end soon. "These are times we wish we had fortune-telling powers,'' Greenhalgh says. "That way, we can grow our business as planned and start reaching out to our enterprise customers who no doubt would need a lot more units. For now, our focus is to ensure our backers get their units as promised."