The Crisis in Ukraine Spells More Trouble for Semiconductor Supply

The reduced availability of raw materials needed for chip fabrication should push manufacturers to invest in alternative sourcing strategies.

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The crisis in Ukraine is the next tectonic disruption in an exhausting two-year span for the semiconductor industry — which was already significantly challenged by the COVID-19 pandemic and insufficient capacity to meet surging demand. This latest threat to semiconductor production may be the most significant yet: It is poised to send shockwaves rippling through a range of manufacturing sectors, including high tech, automotive, consumer electronics, and household appliances.

The root of the issue is that Ukraine is a prime supplier of neon gas — which is required to operate the lasers used in the lithography phase, the heart of semiconductor fabrication. Without neon, chip production comes to an abrupt halt. The U.S. has historically sourced as much as 90% of the required semiconductor neon from Ukraine, which has also provided about 70% of the global supply. Ukraine is also a major supplier of xenon and krypton gases, also critical to chip manufacturing.

The concentration of these strategically essential gases in Ukraine is an accident of manufacturing history. Neon gas is a byproduct of steel production, specifically from older steel mills that today are largely located in eastern Ukraine. The former Soviet Union (which included today’s Ukraine) had many of these large steel mills, which were outfitted with air separation equipment to capture rare waste gases, including neon, krypton, and xenon, for use in experimental high-powered laser weapons, missiles, and satellites. After the dissolution of the USSR in 1991, these older steel facilities were largely replaced with new infrastructure that had no gas-collection technology because the economics did not support it. In contrast, by continuing to operate old-style steel mills, Ukraine became the dominant supplier of these gases that are vital to the global semiconductor industry.

Bracing for Shortages

Russia’s aggression in Ukraine has also exposed several related vulnerabilities to semiconductor supply beyond these gases. Russia today holds 40% of the palladium market, 15% of titanium, 12% of platinum, and 10% of copper, all of which are vital inputs for high-tech products — such as catalytic converters, turbine engines, ion batteries, and circuit boards — and for plating processes in chip manufacturing. The sanctions imposed by the G7 and other nations, fueled by the world’s condemnation of the Ukraine invasion, make Russia a dubious source for such supplies for the foreseeable future.


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Comments (2)
Dr. Rabindranath Bhattacharya
Thanks for the article. Multiple/alternate sourcing is the norm of the day and disruption of the chains could be avoided only by sourcing from them. Recycling of neon gas seems to be an intersting proposition and could be resorted to at the earliest like remanufacturing/recycling  to reduce the supply chain cost. I remember recycling of Aluminium alloy out of returned materials in an auto component unit in India and the capture ratio was nearly  90%.  Five to six sources across the world  were utilised to supply steel bars/coils to avoid disruption.  The essance of strategy is not to feel complacent anytime but be on your toes all the time and listen for signals. World is volatile and so is the supply. Simulation of the chain with new sources  may help in the matter. 
Dr. Rabindranath Bhattacharya
Kolkata, India
Enrique Suarez
The essence of strategy in business, government and education is not beating your competitors (WAR), but to create customer bonding (LOVE).