The Russia-Ukraine conflict is threatening already troubled semiconductor supplies © Photo by THIBAULT CAMUS/POOL/AFP via Getty Images
The Russia-Ukraine conflict is threatening already troubled semiconductor supplies © Photo by THIBAULT CAMUS/POOL/AFP via Getty Images

Chipmakers urged to find suppliers outside of Ukraine

15 February 2022

Any escalation in tensions between Ukraine and Russia could have a severe impact on the production of computer chips, the US government has warned

A memo from The White House has advised the US chip industry to urgently look into diversifying its supplies of neon, krypton and xenon – noble gases used in the manufacturing of computer chips.

Ukraine produces 90% of the semiconductor-grade neon used by the US, as well as 35% of its palladium – a rare metal.

Concern is high as when Russia invaded Crimea in 2014, neon prices rose by around 600%. Any new price hike would add additional strain to manufacturers which are already competing for limited supplies of semiconductors.

Neon gas, critical for the lasers used to make chips, is a byproduct of Russian steel manufacturing. It is purified in Ukraine before being exported. Palladium is used in sensors as well as memory chips.

The US government memo was reportedly sent by Peter Harrell, a member of the White House National Security Council. It stated that he and his staff have made direct contact with members of the chip industry, urging them to find alternative sources for critical materials.

According to Reuters, a White House spokesperson said: “If Russia takes actions that interfere with supply chains, companies need to be prepared for disruptions. We understand that other sources of key products are available and stand ready to work with our companies to help them identify and diversify their supplies.”

Peter Lee, an analyst at financial services firm Citi, said: “Memory [chip] makers currently hold six-to-eight weeks of inventory of these critical gases, higher than the normal level of four weeks. Supply of these gases is highly dependent on Ukraine, and any disruptions to output arising from military action in the region could lead to semiconductor production being severely impacted.”

A conflict may also impact neon-based lithography processes for production of components, including dynamic random-access memory (DRAM) and flash memory.

Separately, the agriculture sector may also face price shocks and shortages of key fertilisers if military activities escalate. The cost of nitrogen fertilisers has more than doubled – from £300 a tonne last year to £700 a tonne today. 

Russia and Ukraine together are responsible for 30% of global wheat exports. Russia has already imposed a two-month freeze on exports of ammonium nitrate – a key fertiliser for boosting wheat and cotton yields.

Russia usually exports almost 50% of its fertiliser-grade ammonium nitrate, with most of this being sent to Europe. Along with Belarus, it is responsible for 38% of the global supply of potash.

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