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War in Ukraine threatens to aggravate global semiconductor crisis

War in Ukraine threatens to aggravate global semiconductor crisis

The Russian invasion of Ukraine It puts at risk the supply of essential materials for the production of chips and could aggravate the problems that the sector is dragging in the wake of the pandemic, causing a price increase or forcing the delay of manufacturing projects.

These tensions are added to those suffered in the last two years, which have generated shortages of certain products, stoppages in some industries and pushed Europe to seek less dependence on Asia to manufacture essential components for any technology.

The Russian invasion of Ukraine will mainly disrupt the supply of neon, a gas essential for the lithography process by which chips are etched, and palladium, a metal used for packaging and other technological applications, according to several analysts.

Ukraine is responsible for 70% of the world’s exports of neon, a gas that is also obtained as a by-product of the manufacture of steel in Russia, while Moscow represents 25% of palladium exports, 35% of iron and 28% of nickel, metals widely used in high-tech production and whose markets are already affected by sanctions on Russia.

Price increase

While manufacturers have stockpiles of these essential materials in the short term, the situation is expected to have a “Strong impact” on prices and poses new risks for the sector, says an analysis by the Bruegel study center, which recalls that in 2014 the annexation of Crimea by Russia shot up the price of neon by 600%.

Added to this is the risk of a new wave of purchases caused by panic over scarcity that raises the price of chips, as happened during the pandemic, although for the moment this hoarding has not occurred.

This is due, in part, to the fact that manufacturers have given guarantees to their customers that “they have enough reserves of raw materials for between four and six months or even more”Explain Kanishka ChauhanPrincipal Analyst in Semiconductors and Electronics at the consulting firm Gartner.

After the Crimean crisis, “manufacturers have done a wonderful job of diversifying their raw material supplies and have managed surprisingly well in this crisis” and while some integrated manufacturers – those concerned with both design and production of chips – have been affected by shortages “This does not have a significant impact on the value chain”point.

All in all, the consultancy believes that the start of the recovery of semiconductor supply chains has been delayed and that full normalization will not come before mid-2023.

The sectors that will remain affected the longest will be those that are not a priority for semiconductor manufacturers, generally low-volume buyers such as the industrial equipment sector. “If a semiconductor company has to choose between a smartphone manufacturer and an industrial manufacturer, it will choose the former”Chauhan says.

Precisely from the mobile phone manufacturer Huawei, one of the largest producers of smartphones in the world, they assure, in this context, that they have no plans to develop chip production lines, but they will continue “accumulating technology through innovation”.

“Huawei is committed to continuing to work with our global industry partners and providing high-quality products and experiences to consumers, so we will continue to work on chipset research and development and design.”said a spokesman for the Chinese multinational.

production delay

The “biggest question” that arises with the war in Ukraine “It is whether the shortage of neon will create a delay in production, whether it will mean that factories have to stop because they need to replace gas or cannot buy some machines”points for his part Nicholas PoitiersBruegel’s analyst.

One of the risks, he adds, is that the deadlines for the projects that Europe or the United States plan for several years to increase their chip production, such as the construction of factories in community territory, will be lengthened, and if this will force them to lower their ambitions in this sector.

In the European Union (EU)these are reflected in the new European Chip Law that plans to mobilize more than 43,000 million euros in investments until 2030 to double its production of semiconductors, which today barely represents 10% of the world market.

In any case, the situation in Ukraine once again puts the focus on the importance of this value chain and increases the pressure on governments and companies to find solutions, giving arguments to those who demand greater public intervention in this market to ensure its resilience. Poitiers said.

Source: Gestion

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