Russia’s War in Ukraine Could Spur Another Global Chip Shortage

When Russia annexed Crimea in 2014, the world’s chipmakers were even more dependent on Ukraine because the country supplied around 70 percent of neon gas. “There were delays in shipments because of border crossing issues,” says Shon-Roy, and the raw materials needed to make neon were also in short supply. “Russia was focusing a lot of their efforts on war and not making steel.”

Burned by that experience, the chip industry scrambled to diversify its supply. A company called Cymer, which is owned by Dutch chip giant ASML and makes the lasers used to draw patterns on advanced semiconductor chips, tried to reduce its consumption of neon. “Chipmakers are concerned about recent escalation of neon prices and supply continuity,” David Knowles, vice president and general manager of Cymer, said at the time, without specifically mentioning Ukraine.

Bondarenko says the price spike in 2014 was mainly caused by a feud between rival neon producers Cryoin and Iceblick, which is no longer operating. However, if access to Russian crude does become an issue, she says, Cryoin has enough supplies to keep production going until the end of March. If that runs out, she claims there are Ukrainian crude producers that Cryoin can turn to as alternatives.

Instead she is more worried about getting neon out of the country. “Borders right now are very overloaded as people, civilians, are trying to evacuate,” she says. “If the authorities of countries where our clients are located are able to influence the border situation for the commercial shipments then that would be a great help [and] it will not affect the whole industry worldwide.”

Chipmakers have played down how much they will be affected by the crisis in Ukraine. “There’s no need to worry,” Lee Seok-hee, CEO of South Korean chipmaker SK Hynix, said last week, adding the company had “secured a lot” of materials. Koichi Hagiuda, the minister of economy, trade, and industry in Japan, said Japanese chipmakers are not expecting a “major impact” on their operations because they can source materials elsewhere. The country imports 5 percent of gases used in semiconductor production from Ukraine.

But there are signs that despite the warning of 2014, Ukrainian neon still plays a major role in the industry. ASML told WIRED it sources “less than 20 percent” of the neon it uses in its factories from Russia or Ukraine. “Along with our supplier we are investigating alternative sources in the event of a supply disruption from Ukraine and Russia,” a spokesperson says.

There are concerns that the US is even more vulnerable. Last week, the White House urged US chipmakers to find alternative suppliers, Reuters reported. “We see huge amounts of imports coming into the US from [Russia and Ukraine],” says TechCet’s Shon-Roy. “It is my educated assessment that what’s coming into the US from Russia and Ukraine could be as much as 80 to 90 percent of all [neon] imports.” US chipmaker Intel did not respond to a request for comment.

But sourcing neon from elsewhere will not be easy. Any disruption in Ukraine will hit chipmakers at a time when the industry is already under intense 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,” Shon-Roy adds. “So there is no excess supply of this kind of gas that I know of, not in the Western world.”

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