Rare earth elements (REEs) play a crucial role in the technology that powers modern data centers and servers. As the global supply chain dynamics shift, Chief Information Officers (CIOs) must navigate the risks associated with these critical materials, most of which are controlled by a single country. A trade agreement announced in November 2023 has temporarily suspended export controls on REEs from China, alleviating immediate supply concerns. However, experts warn that long-term reliance on a single source poses ongoing risks.
China produces approximately 70% of the world’s rare earths, essential for devices ranging from smartphones to electric vehicles and data center cooling systems. The nation also refines about 90% of these materials. Although current semiconductor production faces no major interruptions, CIOs should remain vigilant as longer lead times for server equipment are becoming increasingly common, according to Cori Masters, a Senior Research Analyst at Gartner.
This trade agreement between the United States and China offers short-term stability, yet it does not eliminate the underlying risk. Masters noted that the reliance on a single geographic source for rare earths is a significant concern. “It’s still viewed from a supply chain perspective as a detrimental reliance on a single geography,” she stated.
Understanding the Supply Chain Complexity
CIOs encounter challenges due to the intricate tech supply chain. The critical equipment they source—such as hard drives, cooling fans, and fiber optic components—often relies on REEs that are not immediately visible. These materials are embedded deep within the supply chain, particularly in the Tier 3 to Tier 5 segments, which include processes like refinement and chemical separation. Masters highlighted that most CIOs rarely consider the components of their purchases, focusing instead on pricing and delivery timelines.
The complexities in the supply chain mean that potential disruptions may manifest as subtle cost increases rather than outright shortages. Ashish Nadkarni, Group Vice President of IDC’s Worldwide Infrastructure Research Group, emphasized this point by likening it to grocery shopping. “When you go to buy groceries, if you ask the grocery vendor why your lettuce is $2 more, do you think they’re going to know why?” he asked. This lack of visibility can mask deeper issues related to availability.
Strategies for Mitigating Supply Chain Risks
To address these challenges, CIOs should not only monitor the REE market but also demand greater visibility and diversification from their Tier 1 vendors. Masters and Nadkarni suggest that CIOs sharpen their scrutiny of suppliers and consider implementing risk-monitoring software. They should inquire about any potential shortages within their supply base. “CIOs should be looking for indications within their supply base that they’re running out of materials,” Masters advised.
Utilizing supply chain risk management solutions is essential, particularly since CIOs typically interact with resellers rather than manufacturers. Masters noted that many of these solutions can be tailored to specific industries, providing insights into the broader implications of REE dependencies.
Encouraging alternative sourcing and innovation is another critical strategy. While China dominates the REE market, countries like the United States and Australia are making strides in sustainable extraction. CIOs should remain alert to suppliers exploring these alternative sources, as this could enhance resilience against single-source risks.
Recycling rare earths from existing devices is another potential avenue, although it remains costly and time-consuming. Current methods have not proven effective for meeting high-volume semiconductor demands. Furthermore, semiconductors designed to minimize REE usage are not yet widely available in the market.
In summary, while recent developments have provided temporary relief from supply chain pressures, CIOs must adopt proactive strategies. By seeking greater supplier transparency, leveraging technology for risk assessment, and supporting diversified sourcing, they can better navigate the complexities of the rare earth supply chain and secure the resources essential for their organizations’ technological needs.
