Fears of plummeting neon production affecting chip industry as Russia-Ukraine conflict continues

Silicon wafer

At a time when there are already lingering global shortages of semiconductor chips, fears have been voiced that these problems could be worsened by a prolonged war in Ukraine.

The concern relates to supply of a critical gas called neon, which is needed for the lasers used in a chip production process known as lithography. That process entails machines – which are produced by the Dutch company, ASML – carving patterns into tiny pieces of silicon made by the likes of Intel, Samsung and TSMC, the latter a key supplier of chips to Apple.

A CNBC report has cited a semiconductor analyst at the research firm Bain & Company – Peter Hanbury – as saying that more than half of the world’s neon is produced by a handful of Ukraine-based companies. Two of those companies – Ingas in Mariupol and Cryoin in Odesa – are reported to have halted operations in recent weeks in the face of Russian attacks.

Consultancy firm Techcet has estimated that global neon consumption for the production of semiconductors amounted to approximately 540 metric tons in 2021. It has been suggested that during 2022, this figure could plummet to below 270 metric tons, presuming neon producers in Ukraine don’t restart operations anytime soon.

There has, however, been some reassurance provided by Gartner analyst Alan Priestley, who said to CNBC that the tendency for most leading chip manufacturers to keep reserves of several months’ neon meant it was yet to be a major issue for them.

Steps were also taken by the global semiconductor industry after Russia’s annexation of Crimea in 2014 to try to reduce the future risks associated with chip supplies – including putting in place new suppliers outside of Ukraine and Russia.

In Hanbury’s words: “We estimate only about two-fifths of the neon used in global semiconductor production today is sourced from Russia and Ukraine.”

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