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I-Hwa Cheng | Bloomberg | beautiful pictures
Russia’s war in Ukraine could see the production of neon, a key gas in the production of advanced semiconductors, drop to worrying lows at a time when the world is already grappling with the crisis. chip shortage.
Neon is needed for lasers used in a chip-making process known as lithography, where machines etch patterns onto tiny pieces of silicon made of Samsung, Intel and TSMC.
More than half of the world’s neon lights are produced by some company in Ukraine, according to Peter Hanbury, a semiconductor analyst at research firm Bain & Co..
Those companies include Mariupol-based Ingas, as well as Cryoin and Iceblick, based in Odessa.
The companies did not immediately respond to CNBC’s request for comment, but Ingas and Cryoin have both been shut down in recent weeks amid attacks from Russian forces, according to Reuters.
With Ukraine’s world-leading companies shutting down their operations, neon production could now fall to the brink as the conflict drags on.
Based on estimates from consulting firm Techcet, worldwide consumption of neon lights for semiconductor production reached about 540 tons last year. With Ukraine producing more than half of the world’s neon lights, this number could fall below 270 tons by 2022 if the country’s neon manufacturers remain closed.
“Of the materials used in chipmaking that could have impacted their supply from the Ukraine conflict, it’s neon that presents the biggest potential challenge,” Hanbury told CNBC via email.
The ongoing global chip shortage has wreaked havoc on supply chains and led to lengthy delays on products like new cars and game consoles like the PlayStation 5.
The global shortage of neon lights now threatens to make matters worse.
How is Neon made?
Neon is a by-product of large-scale steel production.
It is made after fractional distillation (a chemical separation process) of liquid air, which is air that has been cooled to a very low temperature.
“Historically, up to 90% of neon lights for the chip industry were produced as a by-product of Russian steelmaking and then refined by companies mainly based in Ukraine.” , said Hanbury, pointing to companies like Cryoin, Ingas and UMG RT.
Alan Priestley, an analyst at Gartner, told CNBC that most major chipmakers have several months of neon in reserve, adding that it hasn’t been a big deal for them yet.
Intel said it is monitoring the situation closely. “Intel has assessed the possible impact of the Russia-Ukraine conflict on their supply chain,” a spokesperson told CNBC.
They added: “Intel’s strategy of having a diversified, global supply chain mitigates the risk of potential local disruptions. We continue to monitor the situation carefully.”
TSMC declined to comment and Samsung did not immediately respond to CNBC’s request for comment.
“Some smaller stores with limited supplies may be affected sooner,” Priestley said. Chipmakers are working with their supply chains to try to minimize the impact, he added.
Prepare for the shortage of neon lights
The global semiconductor industry has been preparing for an event like this for years.
It took important steps to try to limit future risks related to neon light supplies after Russia annexed Crimea in 2014.
“After the annexation of Crimea, the chip sector took action to cut the need for neon lights in the production process,” Hanbury said. “At the same time, steps have been taken to increase gas reserves at two points in the supply chain, so that both gas suppliers and semiconductor manufacturers now typically have three to three supplies of gas. 12 months.”
New suppliers outside Ukraine and Russia have also been brought in by semiconductor makers, Hanbury added.
Hanbury adds: “We estimate that only about two-fifths of the neon lights used in global semiconductor production today originate from Russia and Ukraine.
Dutch company ASMLWhat makes the highly complex lithography machines used by the chip giants, Hanbury adds, has reduced reliance on Ukrainian-sourced neon lights to about 20% from what it used to be, Hanbury added.
An ASML spokesperson told CNBC: “ASML recognizes the importance of being prepared to manage unplanned events, including conflicts when they can affect our supply chain. “
They added: “We continue to closely monitor the situation for conflict and are currently working with our suppliers to investigate what the impact (if any) will be and how our suppliers can use them.” use alternative sources if necessary.”
