Skip to Main Content

The chip shortage, the butterfly effect, and Ukraine

Most of us have heard of “The Butterfly Effect.” For those who haven’t, we are not talking about the awful 2004 movie starring Keanu Reeves (34% on Rotten Tomatoes). What we are talking about is a term used in chaos theory to describe how very small, imperceptible, or seemingly unrelated actions can alter the outcome of complex systems or events.

Even though it didn’t have a name until the 20th century, the concept of the butterfly effect had been discussed and debated for hundreds of years. Even Benjamin Franklin wrote about it when he retold a 13th century German proverb For Want of a Nail, which showed how the lack of one horseshoe nail could ultimately lead to the downfall of a kingdom.

So, is there proof that the butterfly effect is real?

The theory was formally defined by meteorologist and mathematician Edward Lorenz (1917–2008) after he had spent years modeling weather predictions. He found that a very small change in the initial conditions of an experiment can yield substantially different results.

In 1963, Lorenz published an award-winning paper called Deterministic Nonperiodic Flow that demonstrated how tiny changes in the initial conditions of a predictive weather model could change the outcome. Needing a way to explain the paper to those who don’t have PhDs in Meteorology or Calculus, Lorenz started using the butterfly analogy to explain it.

In addresses and interviews, Lorenz explained that the flapping wings of a butterfly could produce tiny changes in atmospheric pressure. And, while these tiny changes could not produce a hurricane or typhoon, the subsequent compounding effects could change its course or intensity.

Over the past two years, we have experienced a butterfly effect in the global semiconductor industry. Who would have thought that the onset of a pandemic and the resulting shelter in place orders would impact our ability to buy a new car?

As they say, hindsight is 20/20 and we can now connect the dots. But, really, could anyone in March 2020 have definitively said that this pandemic would cause 8 in 10 buyers in January of 2022 to pay above the manufacturers’ sticker price for a new vehicle? How about double the price for the latest PC graphics card? No one could have known.

The chip shortage has not just hit auto manufacturers and consumer goods companies. Server, storage, and networking hardware has also been impacted. We are now experiencing increased prices, long lead times, and even the elimination of some models and platforms.

Now, with eyes wide open about how interconnected our technology manufacturing world is, we may be facing another butterfly effect moment. One week ago, a full-scale Russian invasion of Ukraine began on Thursday morning. Why is this so important? Neon gas.

Ukraine is the source of nearly 50% of the world’s supply of purified neon gas. Neon is used to power many of the lasers that etch patterns into silicon wafers during the production of semiconductors. Any disruption in supply could negatively impact the availability of computer chips that are already delayed.

Could a shortage of neon really have that much of an impact? Yes. And we have historic precedent.

In 2014, when Russia invaded and began its occupation of the region known as the Crimean Peninsula, Ukraine was responsible for nearly 70% of the world’s neon supply. That year, the price of neon skyrocketed 600% in response to Russia’s annexation of the area. Fearful that the situation might repeat itself, chip manufacturers all over the world have spent the past week scrambling to secure supplies.

If there is anything that we should have learned from the past 24 months, it is that we always need to be prepared to respond to unexpected shifts in the market. While no one can accurately predict the changes from unknown influences, having the ability to pivot quickly and shift direction is a non-negotiable skill in your IT staff.

Now, more than ever, it’s time to start asking harder “what if” questions.

Here’s one: “What if our all our employees had to work from home with no notice… beginning tomorrow?” I suspect, had you posed such a question in the summer of 2019, you would have been laughed out of the room. In retrospect, it doesn’t sound like such a silly question now.

Let’s ask the questions together and help prepare your organization to respond to the unexpected. At LRS IT Solutions, we have more than 25 years of experience working with our clients to help them thrive and grow through both good times and challenging times.

To find out more about LRS IT Solutions, contact us and we will be in touch. After all, you never know what surprises the next butterfly has in store.

Patrick Schmidt is a Technology Lifecycle Management Specialist with LRS IT Solutions. For more than 23 years, he has been helping customers get a firm grasp on their asset and contract management with a combination of comprehensive service level analysis and lifecycle management best practices.