Ukraine and Russia both export crucial materials used to produce microchips, igniting fears that the conflict could prolong the chip shortage.
The technology industry could face a prolonged microchip shortage due to Russia’s invasion of Ukraine, as both are leading exporters of key components used to produce the chips. The shortage originally started shortly after the COVID-19 pandemic consumed the world, causing both producers and consumers to take drastic measures to acquire processors. Even the largest companies with solid fabrication contracts in place were affected, such as Apple, which saw delays in its historically-predictable release schedule. The shortage has resulted in the unavailability of consumer products, rising MSRPs across the board, and a ferocious resale market overrun by scalpers.
Prominent companies in the microchip fabrication business, like the Taiwan Semiconductor Manufacturing Company (TSMC) and Intel, have invested in new facilities to mitigate these supply and demand issues. Due to the amount of time it takes to get a facility up and running though, TSMC and similar companies do not expect the shortage to end in 2022. In fact, they’re preparing for the shortage to extend into 2023. As government entities ponder whether to take action on the shortage, international conflicts pose new challenges for the already prolonged supply chain problems. Many countries have devoted their focus toward Russia’s invasion of Ukraine, which involves two countries that produce components of microchips, resulting in economic sanctions that could disrupt the technology industry.
On Feb. 24, 2022, in response to the invasion, U.S. President Joe Biden announced joint economic sanctions that would severely impact Russia’s exports, which includes semiconductor components. “Today’s actions include sweeping financial sanctions and stringent export controls that will have profound impact on Russia’s economy, financial system, and access to cutting-edge technology,” said the White House. In addition to the United States, Australia, Canada, the European Union, Japan, and the United Kingdom are levying forceful economic sanctions on Russia. This will impact the weakened semiconductor industry, because both Russia and Ukraine provide neon gas and palladium that are required to produce the chips.
According to a CNBC report, Russia is a significant source of neon gas, which is produced in the process of steel manufacturing. The gas is then purified by a Ukrainian-based company that specializes in the refinement of neon gas. The supply of neon gas and palladium will be impacted by the invasion and its resulting economic sanctions, especially hurting the U.S. semiconductor industry. Nearly all of the industry’s neon gas imports come from Russia and Ukraine, the report notes. Looking past Russian-Ukrainian conflicts, the market is expected to face inflation concerns. Due to the annexation of the Crimean Peninsula back in 2014, neon gas prices saw a sixfold increase in cost.
It’s not clear what securities might be in place to prevent a shortage, but it was reported last month that the White House warned manufacturers that a conflict could disrupt the industry. “Part of that is working with companies to make sure that if Russia takes actions that interfere with supply chains, companies are prepared for disruptions,” a senior White House official previously told Reuters. The early response from the United States and its allies has been a hard stance against the invasion, as evidenced by major economic sanctions, and the microchip shortage in the U.S. could face both supply issues and price hikes if a prolonged conflict continues.
Source: White House, CNBC, Reuters
Brady Snyder is a journalism student at St. John’s University specializing in Apple, wearables, and audio. Based in New York City, he reviews consumer technology, software, and services. Brady is well-versed in iOS, iPadOS, watchOS, and macOS — but experiments with Android and Windows as needed. He believes that competition between technology companies facilitates progress, and cautions against sticking to one particular brand or device. Instead, Brady tests out any tech product or service he can get his hands on, and aids buyers in making an informed decision about what is best for their needs. He’s currently flipping into the future with Samsung’s Galaxy Z Flip 3 5G, but the Apple Watch’s incredible fitness features might have him coming back to the iPhone in no time. Brady’s always searching for the best and most productive workflow with his technology, regardless of the platform he is currently using. Follow Brady on Twitter @BradyPSnyder.