Russia-Ukraine Conflict Makes Chip Supply Increasingly Scarce, This Is The Cause

JAKARTA – A source at the White House warned the US chip industry to diversify its supply chain. This needs to be done if Russia retaliates against the threat of US export restrictions by blocking access to key ingredients.

The potential for retaliation has garnered more attention in recent days after Techcet, a market research group, published a report on February 1 that highlighted the dependence of many semiconductor manufacturers on materials sourced from Russia and Ukraine such as neon, palladium and others.

According to Techcet's estimates, more than 90% of the US supply of semiconductor grade neon comes from Ukraine, while 35% of US palladium comes from Russia.

Peter Harrell, who sits on the White House National Security Council, and his staff have been in touch with members of the chip industry in recent days, learning about their exposure to Russian and Ukrainian chip-making materials and urging them to find alternative sources.

The White House declined to comment on specifics of the statement, but a senior official reiterated that the administration was prepared if Russia invaded Ukraine.

"Some of them are working with companies to ensure that if Russia takes action to disrupt supply chains, companies are prepared for that disruption," the source told Reuters.

"We understand that other key product sources are available and are ready to work with our companies to help them identify and diversify their supply," he added.

Reported by Reuters, Joe Pasetti, vice president of global public policy at electronics and chip manufacturing supplier group SEMI, emailed members this week to gauge exposure to vital chipmaking supplies.

"As discussed in today's call, please see the attached document ... regarding the Russian/Ukrainian production of a number of semiconductor materials," he wrote, referring to a summary by Techcet on C4F6, Palladium, Helium, Neon, and Scandium from the troubled region. "Please let me know if a potential supply disruption to any of them is an issue for your company."

Neon, essential for the lasers used to make chips, is a dual product of Russian steel manufacturers, according to Techcet. This product is then refined in Ukraine. Palladium is used in sensors and memory, among other applications.

President Joe Biden's administration has threatened to impose sweeping export controls on Russia if it invades Ukraine. Russia, which has amassed more than 100,000 troops along the Ukrainian border, denies planning to attack.

Several chipmakers have been reviewing their supply chains to scan for potential repercussions from the conflicts in Ukraine and Russia. One person at a chipmaker, who declined to be named, admitted that they had been sourcing neon and other gases from other sources, some of which came from Ukraine.

"Even if there is a conflict in Ukraine, it will not cut supply. It will push prices up," the person said. "The market will narrow. Those gases will become very scarce. But that won't stop semiconductor manufacturing," he added.

According to one executive of a power chip design startup, the unrest in Ukraine has caused the price of rare gas to soar and could lead to supply problems. Fluorine is another gas that has large supplies from that part of the world and could be affected, the executive added.

William Moss, a spokesman for Intel Corp., said the chipmakers do not anticipate any impact on neon supplies.

However, this issue is still a concern, as global chip supply is limited and chip orders are expected to increase. Techcet expects demand for all materials to increase by more than 37% over the next 4 years. This refers to recent announcements by Intel, Samsung, and TSMC Taiwan in Ohio, Arizona, and Texas.

According to the US International Trade Commission, the price of neon rose 600% ahead of Russia's annexation of the Crimean peninsula from Ukraine in 2014, as chip companies relied on several Ukrainian companies.