What a neon shortage in Ukraine would mean for the chip industry

15 Mar 2022

Image: © Raimundas/Stock.adobe.com

With two of Ukraine’s biggest neon producers halting production, chipmakers could expect disruptions in the long run.

The global semiconductor industry is at risk of being adversely impacted by a neon shortage.

It comes after Reuters reported that two Ukrainian companies, Ingas and Cryoin, have halted production following the invasion of the country by Russia. Ukraine is a significant supplier of neon and Ingas and Cryoin account for anywhere between 45pc and 54pc of the world’s total neon output, according to Reuters calculations.

Future Human

Neon is a gas that is crucial for making chips. It is used in the lithography step, which involves lasers carving into silicon to develop semiconductors. With global supply chains already facing a chip crunch, impacting everything from personal electronics to car manufacturing, it is possible that a neon shortage could raise prices and cause further disruption.

Ingas, based in the heavily bombed city of Mariupol, typically exports neon to customers in countries such as Taiwan, Korea, China, Germany and the US, with about 75pc going to the chip industry. Now, the city is under siege with limited phone and internet access.

Cryoin, which is based in the city of Odessa in southern Ukraine, told Reuters that that it could weather at least three months with the manufacturing plant closed, after which it would face a sharp financial crunch. If equipment is damaged or access to raw materials is restricted, the company said it would make it difficult to restart operations.

Big chipmakers prepared, but not for long

While major chipmakers such as TSMC, Samsung and Intel tend to have large reserves of stock they need for production, a prolonged hit to the supply chain arising from the Ukraine conflict could prove detrimental to their businesses too.

The government of Taiwan, home of TSMC and other large chipmakers, said in an emailed statement to Reuters that Taiwanese firms had made advanced preparations and have reserve stocks of neon for the near term.

Intel also seems to be prepared for any short-term impact. Speaking to The Register, an Intel spokesperson said that having a “diverse, global supply chain minimises its risk to potential local interruptions”.

“Intel has assessed the possible impact of the conflict on Intel’s supply chain. However, we are monitoring the situation carefully,” they said.

Lita Shon-Roy, president of market research firm Techcet, told Reuters that while these larger chipmakers may have “greater buying power and access to inventories” that can cover them for a while, she estimates this period to be for “two months or more”.

China is also a significant producers of neon gas, but prices there have been soaring in recent months according to multiple media reports. With rising Covid-19 cases leading to lockdowns in major Chinese cities, there is potential for further disruption to tech supply chains.

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Vish Gain is a journalist with Silicon Republic

editorial@siliconrepublic.com