The microchip industry sees a new challenge looming on the horizon. One related to the Ukraine war. After two years marked by the pandemic and the semiconductor crisis, a scenario that according to some large manufacturers will not clear up until well into 2022 and others extend to 2023, the sector now adds an extra danger: that the conflict created by Russia complicates supply of neon, a key gas for the manufacture of chips. According to the data handled by TechCet, about half of the world’s supply comes from the country of Volodímir Zelenski.
The Russian offensive on Odessa, a coastal city that is now the focus of the Kremlin’s attention, would have already partially affected the sector. The company Cryoin Engineering, dedicated to the worldwide production and distribution of neon gases, among others, and with significant weight in the sector, has its headquarters there. Days ago, those responsible for the firm, which supplies companies in the US, Asia and Europe, acknowledged to Wired that they had stopped production after the first attacks.
His plans were then to resume activity in the factory that same weekend; but the reality is that, after ten days of war, the situation in Odessa is particularly delicate, with the Russian forces centered on the city after taking Kherson. The attacks are not the only headache for the company. Another concern of those responsible for Cryoin is how to get the neon out of the country with the borders “overloaded” by citizens fleeing the war.
A crisis with echoes of 2014
It is not the first time that the sector and chip manufacturers face a similar situation. In 2014, during the annexation of the Crimean peninsula, there was already a shortage of neon gas that caused prices skyrocketed 600%. In addition to the increase in costs, there were delays in shipments due to the situation at the border and the lack of raw materials. Manufacturers depended on neon gas from the Ukraine at that time, yes, much higher than what is recorded today: approximately 70%.
At the moment and at least publicly, the chipmakers are calm. The Korean SK Hynix, Intel Corp, GlobalFoundries, United Microelectronics Corp or Malaysian Unisem, for example, have posted messages along these lines, stressing the available stock or their ability to find sources outside Ukraine and Russia. In the US, the government has already instructed the industry to also diversify its suppliers in case Moscow retaliates. More than 90% of the country’s semiconductor-grade neon comes from Ukraine, and 35% of the palladium it uses — a metal also used in sensors and memory — originates from Russia.
Neon gas is essential for lasers used to etch patterns into silicon wafers to shape chips. In Ukraine, firms such as Cryon or Iceblick are responsible for taking the neon that is produced in Russia as a by-product of steel manufacturing and treating it to adapt it to the needs of the industry. The implications of the war could in any case go beyond Russian neon or palladium. According to data from the World Bureau of Metal Statistics, last year Russia was the world’s third largest producer of aluminum and a large part of its production is exported to Turkey, Japan, China, the United States and the countries of the European Union itself.
The new threat could aggravate the complex scenario that the pandemic inherits from the sector, a scenario that was generated by the increase in demand and had not yet been cleared up. Large automotive brands, such as Ford, Hyundai or General Motors, recognized at the beginning of February that the scenario was not expected to subside until late 2022.
Precisely to prevent the problem from repeating itself public bodies and multinationals have begun to make a move. The EU wants to quadruple its production by 2030 and Intel or Bosch want to strengthen their production muscle at the stroke of a checkbook, with a millionaire investment program. In recent months, the sector has already warned of another problem: the shortage of qualified personnel.
Image | TSMC
George is Digismak’s reported cum editor with 13 years of experience in Journalism