What does the chip shortage mean for cloud computing?

The complex problems behind the current worldwide chip shortage boil down to two basic factors: The pandemic limited chip manufacturing, and demand now outpaces supply.

It will take time for the chip supply to normalize and the effects of the shortage to correct throughout the manufacturing and distribution processes of technology products. Unfortunately, it won’t happen at the speed most experts predict or promise. 

Most of the questions I get from technology reporters and analysts these days relate to the chip shortage, specifically the effect of the chip shortage on the cloud computing market. Here are brief summaries of my observations. 

First, the shortage impacts traditional enterprise data centers more than cloud providers. The good news for cloud providers, or those who use cloud providers, is that they are less sensitive to chip price and availability issues compared to private data center owners. Here’s why:

Cloud providers do a much better job of sharing chip-based resources, given that they leverage virtualized and multitenant systems. The typical data center won’t be as efficient at sharing chip-based resources, no matter if they are virtualized or not. 

Cloud providers can keep prices lower per processing cycle because they take a much longer-term look at pricing and its effects. It’s to their advantage to keep usage prices low since the number of customers they acquire translates directly into long-term reoccurring income. For the standard data center, it’s just sunk costs that will not be fully utilized for many years.

Copyright © 2021 IDG Communications, Inc.

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