Russia-Ukraine conflict to exacerbate global chip crisis

The Ukraine factor in Europe arising from Russia’s special operations this week may affect the supply of raw materials for semiconductor production, which could inflate prices and further strain global supplies, sector experts said.

Though some chipmakers reported limited short-term impacts on their production given raw material stockpiles and diversified procurement, experts warned of long-term concerns, given that Ukraine is a major supplier of raw material gases like neon, argon, krypton, and xenon for semiconductors.

Market research company Trend-Force said in a report that Ukraine supplies nearly 70 percent of the world’s neon gas, which is critical for lasers used in chipmaking. And if the supply of materials is cut off, there will be an impact on the industry.

A reduction in supply of gases “will likely lead to higher prices which may increase the cost of wafer production,” though the conflict between Russia and Ukraine will not halt chip production altogether in the short term, TrendForce said.

Xiang Ligang, director-general of the Information Consumption Alliance, a telecom industry association, said the conflict is likely to exacerbate current chip shortages that started in late 2020.

The prolonged chip supply crunch has affected more than 169 industries in the world to some extent in 2021, ranging from automobiles, steel products, smartphones and air conditioning, according to a report from Goldman Sachs.

Chinese company Kaimeite Gases Co Ltd said its neon gas prices have risen significantly recently due to the conflict. “We sell neon gas through dealers, mainly to foreign countries. And these days, foreign companies’ price quotations are higher than those of domestic ones,” Chinese news portal Jiemian quoted Kaimeite Gases as saying.

ASML Holding, a key Dutch supplier of semiconductor equipment to big names such as Samsung Electronics and Intel Corp, said on Wednesday that it is examining alternative sources for neon.

Some companies said the impacts are limited as they have stockpiled raw materials and diversified procurement channels. South Korean memory chipmaker SK Hynix said last week that the company had secured a lot of chip materials, and that there is no need to worry.

GlobalFoundries said it does not anticipate a direct risk and has flexibility to seek sources outside Russia or Ukraine. Intel said it does not anticipate any impact.

Ariane Bucaille, leader of the Deloitte global technology, media and telecommunications industry, said earlier that the global chip shortage is likely to last throughout this year as digital transformation continues to gain traction amid Covid-19.

Hollow assurance:

However, the Semiconductor Industry Association (SIA) said Thursday, “Russia is a small market for the chip industry and its invasion of Ukraine doesn’t represent a threat to chip supply.”

US and allied sanctions against Russia also are unlikely to have a significant effect on industry sales, the Economic Times of India reported citing SIA.

“While the impact of the new rules to Russia could be significant, Russia is not a significant direct consumer of semiconductors, accounting for less than 0.1% of global chip purchases,” SIA Chief Executive Officer John Neuffer said in a statement.

“In addition, the semiconductor industry has a diverse set of suppliers of key materials and gases, so we do not believe there are immediate supply disruption risks related to Russia and Ukraine,” he said.

Some individual companies also issued statements aimed at calming customers.

“We do not anticipate any impact on our supply chain,” Intel said.

“Our strategy of having a diverse, global supply chain minimises our risk of potential local interruptions,” the largest semiconductor manufacturer in the world said.