Ukraine supplies 90% of U.S. semiconductor-grade neon (and what it means to chip supply chain)

Ukraine supplies 90% of U.S. semiconductor-grade neon (and what it means to chip supply chain)

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Following Russia’s invasion of Ukraine, experts warn that the conflict could impact the global chip industry and exacerbate current chip shortages

According to research firm Techcet, Ukraine supplies more than 90% of the U.S.’s semiconductor-grade neon, a gas integral to the lasers used in the chip-making process, while Russia supplies 35% of the U.S.’s palladium supply, a rare metal that can be used to create semiconductors. 

While the Semiconductor Industry Association (SIA) argues “the semiconductor industry has a diverse set of key materials and gases, so we do not believe there are immediate supply disruption risks related to Russia and Ukraine,” the long-term impact of the conflict remains unclear. 

With such a high amount of the U.S.’s semiconductor-grade neon supplied by the Ukraine, the conflict is placing increasing pressure on a supply chain that’s already made it difficult to source chips for hardware and enterprise applications throughout the pandemic. 

The long-term impact of semiconductor neon shortage

Russia’s invasion of Ukraine comes after the demand for chips has increased across the board throughout the COVID-19 pandemic, as consumers and enterprises have demanded greater access to electronics. 

For enterprises, demand for chips that specialize in artificial intelligence for machine learning training and inference is predicted to grow at over 50% annually across all computing categories for the next few years. 

While entities like the South Korean government have invested $451 billion in semiconductor development and Intel invested $20 billion in two new semiconductor foundries to combat the chip shortage, the U.S. government has warned that the global chip supply chain remains weak. 

“We are glad that the companies [Intel, Ford, GM] have been looking for creative solutions, because the private sector is best-positioned to address bottlenecks,” Secretary of Commerce Gina M. Raimondo wrote in a blog post last month. “But the semiconductor supply chain remains fragile and it is essential that Congress move swiftly to pass the President’s proposed $52 billion in chips funding as soon as possible.”

Within the post, Raimondo noted that the median inventory of chips fell from 40 days in 2019 to less than five days in 2022 and that most chip fabs are running at more than 90% utilization. 

Some of the key bottlenecks she identified included legacy logic chips used in automobiles and medical devices as well as analog chips used in power management, image sensors, radio frequency and other applications. The loss of fabs in the Ukraine would greatly impact this shortage. 

This means there’s a need for more fabs to produce semiconductors, which is why the House of Representatives recently put forward its version of the U.S. Innovation and Competition Act (USICA) with $52 billion in domestic semiconductor funding. 

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