Russia's Invasion of Ukraine Could Hit Global Chip Industry

The escalating war Russia is waging in Ukraine has the potential to impede the supply and cost of semiconductors worldwide.  

Neon gas and palladium are both used to produce semiconductor chips. It is estimated that Ukraine supplies over 90 per cent of neon used worldwide and it is a critical gas for lasers used in chipmaking. Russia, meanwhile, provides 25 per cent of all the palladium used in sensors and memory. The US neon supply comes entirely from Russia and Ukraine according to market research firm Techcet, an electronic materials advisory firm that counsels some of the world’s biggest chipmakers including Intel and Samsung. Late last month, the White House urged US chipmakers to find alternative suppliers and the Japanese government has also urged its manufacturers to secure other possible sources. 

One of the world’s major suppliers of neon is Cryoin, a specialised operator which sources and purifies Russian gas. It is based in the Ukrainian city of Odesa, which was among Vladimir Putin’s first targets when the invasion started. 

“What happens in Russia is that those [steel] companies that have the facility to capture the gas will bottle it and sell it as crude,” Lita Shon-Roy, president and CEO of TechCet told CNBC. “Then someone has to purify it and take out the other [gases] and that's where Cryoin comes in.” 

Cryoin supplies companies in Europe, Japan, Korea, China, and Taiwan, but most of its neon is shipped to the US, according to the company.  

The Russian invasion prompted Cryoin to halt production last week. “We decided that [our employees] should stay at home for the next couple of days until the situation is clearer, to make sure that everyone is safe,” business development director Larissa Bondarenko told Wired. Despite plans to restart production in the past few days, missiles over Odesa meant it was too dangerous.  

Analysts are warning that Russia’s actions will push up the cost of chips if the war continues.  

“This will have an impact,” Mr Lita Shon-Roy said. “It’s just one more thing that is going to force prices up,” he added, predicting that the increase would be felt between six months and one year from now. 

A Japanese chip industry source who spoke on condition of anonymity told Reuters: “The chipmakers are not feeling any direct impact [yet], but the companies that supply them with materials for semiconductor fabrication buy gases, including neon and palladium, from Russia and Ukraine. 

“The availability of those materials is already tight, so any further pressure on supplies could push up prices. That in turn could knock on to higher chip prices.” 

The industry is already contending with shortages as it battles to keep up with pandemic demand for devices such as phones, tablets, laptops and smart TVs. Apple, one of the world’s largest chip buyers, told manufacturers in October that it would make 10 million fewer iPhones in 2021 than planned due to chip shortages. 

Russian aggression in Ukraine is making the industry nervous that these shortages could result in a repeat of 2014, when prices for neon gas surged by 600 per cent after Russia annexed Crimea.  

The concern is perhaps most keenly felt in the US. “We see huge amounts of imports coming into the US from [Russia and Ukraine],” Mr Shon-Roy said. “It is my educated assessment that what's coming into the US from Russia and Ukraine could be as much as 80 to 90 per cent of all [neon] imports.”  

But sourcing neon from outside Ukraine is not straightforward and the war could hit chipmakers when the industry is already under serious pressure from post-pandemic demand.  

“The drive behind increased production is so strong that it is causing strain in the supply chain everywhere, even without a war,” Mr Shon-Roy pointed out. “So there is no excess supply of this kind of gas that I know of, not in the Western world.” 

While the manufacture of new chips may be under threat, the refurbished technology market will remain largely unaffected. Choosing refurbished technology which is offered by Techbuyer alongside its range of new technology will enable companies to both beat any increased lead times and buy technology for less.