Production of vital raw materials for chip manufacturing is concentrated in Russia and Ukraine. Countries are a major source of neon gas, needed to power lasers that print tiny circuits on silicon, and palladium metal used in later manufacturing steps.
About a quarter to half of the world’s semiconductor-grade neon comes from Russia and Ukraine, while about a third of the world’s palladium comes from Russia, analysts and industry consultants estimate. A potential shortage of these materials has raised concerns among some analysts that an industry already struggling to meet strong demand could take a hit to production.
Those worries may not come to pass, at least not in the short term, in part because the industry has reset its operations after being battered by pandemic-era demand and repeated shocks. These have included fires at chip factories, frost in Texas, drought in Taiwan, other setbacks and global supply chain disruptions.
Companies have moved to strengthen supply chains amid the upheaval, in some cases adding alternative suppliers to gain options. They’ve stocked up on neon and other important chip-making materials, and now typically have a six-week to three-month supply, said Mark Thirsk, managing partner of Linx Consulting Inc., a technology consultant. electronic materials based in Massachusetts.
Semiconductor manufacturing in Taiwan Co.
, the world’s largest contract chipmaker, has made sure it has alternative supplies of neon after Russia mustered a force along the Ukrainian border, threatening a conflict, according to a person familiar with the strategy. from TSMC. It no longer anticipates supply issues, the person said.
Infineon Technologies HER
, a major German chipmaker that supplies the automotive industry – which has been hit particularly hard by the chip shortage – said it did not expect an impact on production, saying it had options supply. “Infineon has also increased its inventory of potentially affected raw materials and noble gases,” including neon, a spokeswoman said.
The chip industry generally says they don’t expect much pain. “If this had happened maybe 10 years ago, we might have suffered a lot more than we do today,” said Jimmy Goodrich, vice president of global policy at the Semiconductor Industry Association, a industry body based in Washington, DC.
For chip companies, Russia’s 2014 annexation of Crimea – part of Ukraine – provided an early lesson in dealing with regional political uncertainty. Neon prices rose and chipmakers moved to find gas sources elsewhere.
During the coronavirus pandemic, businesses have moved to bolster critical supplies amid global logistical disruptions. Then, in early February, as Russian President Vladimir Putin massed troops along the Ukrainian border, the White House warned chipmakers that export controls and other actions would follow an invasion, two people say. close to the file. The Biden administration relied on the close ties established with chip companies during the semiconductor supply crisis.
US sanctions against Russia landed shortly after the invasion, limiting sales of chips and other technology to strategic Russian industries. While the restrictions don’t force chipmakers to halt all sales to Russia, many have, including market leaders Intel. Corp.
and advanced micro-devices Inc.
Russia is not a major market for chipmakers, analysts say.
Although company officials say they are well prepared, that does not mean that an already strained industry is not in danger.
There’s enough neon in chipmaker facilities and in the gas supply chain to last about six months in the industry, estimates Mr. Thirsk of Linx Consulting. After that, prices are expected to soar, analysts say, much like they did back when Russia annexed Crimea in 2014, sending a commodity that was trading at 25 cents a liter to $5. per liter on the spot market. Gas consumers with thinner profit margins — lasers used in eye surgery, for example — could be frozen before a potential shortage spills over into the more lucrative semiconductor industry.
IPG Photonics Corp.
a U.S.-based company that supplies optical components to industries including semiconductor manufacturing, said last week that U.S. sanctions would increase shipping times and costs for products involving its operations in Russia, where it has approximately 2,000 employees.
Even if prices increased 10-fold, neon would represent a tiny fraction of the industry’s cost structure, Bernstein analyst Stacy Rasgon said in a note. The semiconductor-grade neon industry is estimated to be around $100 million a year, compared to worldwide chip revenues of over $500 billion.
Write to Asa Fitch at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8