Semiconductor Industry Is Better Prepared This Time

Sebastien Callebaut -

Russia And Ukraine Are Key Exporters Of Neon Gas And Palladium

Russia and Ukraine produce the majority of the raw materials used in chip manufacturing. Both neon gas, which is used to feed lasers that print circuitry onto silicon, and palladium, which is utilized in subsequent production stages, are abundant in the countries.

  • According to analysts and industry consultants, Russia and Ukraine produce around a quarter to half of the world's semiconductor-grade neon and about a third of the world's palladium
  • Some analysts are concerned that a potential shortage of such commodities may cause the sector to experience a production setback

"If stockpiles are depleted by April and chipmakers don't have orders locked up in other regions of the world, it likely means further constraints for the broader supply chain and inability to manufacture the end-product for many key customers" Angelo Zino, an analyst at CFRA

Yet, according to a report from the Wall Street Journal, the semiconductor industry has benefited unexpectedly from nearly two years of chip shortages: it is better prepared to deal with the chaos generated by Russia's invasion of Ukraine.

Manufacturers Have Already Secured Raw Materials

After being heavily pressured by COVID-induced supply chain issues, a major freeze in Texas and a drought in Taiwan, the industry has prepared itself better for any new large scale issue.

  • Chip producers have attempted to tighten up supply networks, in some cases adding alternative suppliers to expand their possibilities
  • They loaded up on neon and other critical chip-making materials, and now have a six-week to three-month supply, according to Mark Thirsk, managing partner of Linx Consulting, an electronic materials consultancy based in Massachusetts

According to a person close to TSMC, after Russia gathered its troops along the Ukrainian border, threatening a conflict, the world's largest chip producer ensured it had alternate supplies of neon. As such, it doesn't anticipate supply issues stemming from the war in Ukraine.

"The Economy Ministry of Taiwan, home to the world's largest contract chip maker TSMC, said that Taiwanese firms had already made advanced preparations and had "safety stocks" of neon, so it did not see any supply chain problems in the near term. [This] echoed similar remarks from Taiwan's central bank earlier on Friday." by Alexandra Alper for Reuters

BENCHMARK'S TAKE

  • Chip manufacturers have stockpiled on key raw materials as a consequence of COVID-induced disruptions
  • Yet, a prolongation of the war in Ukraine could pressure chip manufacturers and then the broader economy as the supply of key raw materials is heavily disrupted

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

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