Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
For the past two years, global automakers and electronics manufacturers are reeling from the global semiconductor shortage, and the situation is likely to exacerbate by the ongoing Russia-Ukraine conflict.
Although Asia is the hub of global chip manufacturing and assembly, some key raw materials needed for semiconductor production are supplied by Russia and Ukraine. The highly fragmented sector is likely to face further issues, creating problems for several other industries that depend on semiconductor supplies for their products.
With no immediate end of the conflict in sight, top semiconductor manufacturers from Asia are reviewing inventory and looking for alternatives to obtain key raw materials and components used in semiconductor production.
Semiconductor supply chain disruptions on the charts
Ukraine is one of the world’s biggest producers of neon gas and currently supplies up to 40% of the neon gas used in memory chip production in Asia, as per Bill Maldonado, Head of Equities, at Eastspring.
“During the 2014-2015 war in Ukraine, neon prices went up by several timeps over, indicating how serious this can be for the semiconductor industry: semiconductor-exposure companies make up 70% of total neon demand, as it is an integral part of the lithographic process for making chips,” Tim Uy of Moody’s Analytics said in a report.
According to ICSmart, Ukraine produces 40% of krypton, and 30% of xenon (the other two noble gases necessary to manufacture semiconductors).
Hemal Thakkar, director at CRISIL Research said, “Russia is probably the largest producer of Palladium (over 40% of global mine production), which is essential for memory and sensor chips along with several other rare-earth metals.” Palladium is used for plating in the semiconductor industry.
Measures by Asian semiconductor makers
The world’s largest chipmaker, Taiwan Semiconductor Manufacturing Co. (TSMC), told Nikkei Asia that the company has met with important gas suppliers to ensure supplies would continue to be accessible. ASE Technology, another Taiwanese semiconductor testing and packaging company, claimed its material supply was “stable at this point”, while Taiwanese chipmaker United Microelectronics said it did not expect a direct risk and had the flexibility to choose sources outside of Russia and Ukraine.
South Korea’s SK Hynix CEO Lee Seok-hee stated, “We have enough inventory of raw materials. We are well-prepared, so there is no reason for concern.”
Likewise, Samsung said production was running business-as-usual, largely thanks to “diversified sources for materials.”
However, the two Korean memory chip suppliers, with a combined market share of more than 70%, indicated they were closely monitoring the situation and intended to obtain raw materials from alternative suppliers in China and elsewhere. South Korean enterprises, according to Lee Woong-chan of Hi Investment & Securities, rely on China (67%) for neon more than Ukraine (23%).
In Japan, Ukraine provides only 5% of the gases used in semiconductor fabrication. The country is however surveying local chipmakers to see how long they can maintain production if Russian imports are halted and whether they can get the gases from another nation.
Meanwhile, Dutch-based ASML Holding NV – a major supplier to TSMC, Samsung, and Intel – said, “Along with our supplier we are investigating alternative sources in the event of a supply disruption from Ukraine and Russia”. ASML currently buys less than 20% of its neon gas from Russia and Ukraine. In 2021, Asia accounted for 85% of ASML’s sales.
According to analyst Douglas Kim who publishes on Smartkarma, Palladium is mainly used to make NAND Flash memory, of which Korea and China are major producers, but fewer Taiwanese companies are engaged in this sector.
“As a result, a potential invasion of Ukraine by Russia could have a bigger negative impact on Samsung Electronics and SK Hynix as compared to TSMC.”
Meanwhile, a lack of neon supplies may have a bigger negative impact on TSMC in the short term, the analyst added.
Semiconductor sanctions on Russia
Following Russia’s invasion of Ukraine, few Asian economies have joined hands with their Western counterparts to prohibit chip sales to Russia. Taiwan, which produces over 50% of the world’s microchips, stated that it will join international sanctions on Russia. Even though Russia has not been a major chip market, it is entirely reliant on Taiwan for high-end semiconductor imports.
Similarly, Japan, South Korea and Australia also intend to curb exports to Russia for goods such as electronics, semiconductors, and computers.
China – potential winner?
As other sources of chip supplies dry up, Russia‘s dependence on China is likely to increase with stricter sanctions. Russia purchases roughly 70% of its chip supplies from China, according to Semiconductor Industry Association (SIA).
Additionally, analyst Evelyn Zhang who publishes on Smartkarma, also suggests that the semiconductor supply chain in China stands to benefit from the Russia-Ukraine crisis. The proportion of Chinese noble gas suppliers for wafers larger than 8 inches has risen over 30%. Companies like Guangdong Huate Gas, Hunan Kaimeite Gases, may benefit from the crisis, as per the expert.
On the other hand, Dale Ford, chief analyst at the Electronic Components Industry Association, during an online discussion organised by SIA said that China could launch an offensive against Taiwan under the shadow of the Russian invasion. “The nightmare I’ve had is if China now uses this (Russian invasion) as a pretext to move on Taiwan, the problems with Ukraine and Russia will be a faint memory,” he added.
