Ukraine war could further disrupt semiconductor production

Today's global market of semi-conductors accounts for over €500 billion - a figure that should double by 2030. Europe accounts for 10% of the global production, compared to 24% in 2000 and 44% in 1990. [shutterpix/Shutterstock]

The war in Ukraine might upset the European Union’s ambitions to become a leader in chip production, but Russia is set to pay a direr price in the long term. EURACTIV France reports.

Russia’s war against Ukraine, which began with a military attack on 24 February, is likely to have many side effects in the medium to long term for the semiconductor industry, a top priority for Brussels’ digital sovereignty.

The production of neon, palladium, and C4F6, three materials crucial for microchips, could be impacted by the situation, the consultancy firm Techcet has said. “These materials are vital to semiconductor processing and irreplaceable,” Technet’s analysts told EURACTIV.

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Neon, for example, is a gas that is essential to the operation of lasers for engraving chips and is used almost exclusively for this purpose. It is present in tiny quantities in the air and needs to be processed in huge volumes.

Russia produces a lot of neon because it has a large steel industry which requires a lot of oxygen. The country then sends it to Ukraine, where the neon is extracted and purified for export. At least, that was the case before the invasion.

“If the current situation escalates, US chipmakers may suffer material supply interruptions,” Techcet president Lita Shon-Roy warned at the start of February when tensions were already high. The US depend almost exclusively on the Ukraine-Russia duo for its neon needs.

Russia is also one of the world’s largest palladium producers, a rare metal also used in the manufacture of some semiconductors. The consultancy firm estimates that Russia supplies 37% of the world’s supply, second only to South Africa (40%).

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A ‘weak’ immediate impact

According to the Techcet experts, the immediate impact on the EU industry will be “weak”.

However, “the semiconductor supply chain is already strained due to the increase in chip demand.” and “any material supply disruption can negatively impact chip production in the next 6-12 months”.

According to them, the situation should thus “certainly slow down the growth trajectory that the EU chip industry is hoping to see.”

Today’s global semiconductors market accounts for over €500 billion – a figure that should double by 2030. Europe accounts for 10% of the worldwide production, compared to 24% in 2000 and 44% in 1990.

The consequences of the war will depend on “how well prepared each chipmaker is, in terms of their buying power, and whether they have already set up alternative sources of supply,” the Techcet analysts also highlighted.

For the time being, however, industry players are not worried.

“As of today, none of our suppliers had reported any potential impact. We continue to closely monitor the situation with our suppliers and partners,” a spokesperson of STMicroelectronics, one of the European champions in the sector, told EURACTIV.

At the start of March, the company received a €600 million loan from the European Investment Bank to develop pilot production lines for advanced semiconductors at its Italian sites in Agrate and Catania and its French site in Crolles.

The Semiconductor Industry Association (SIA), which represents the US semiconductors industry, said that “the semiconductor industry has a diverse set of suppliers of key materials and gases, so we do not believe there are immediate supply disruption risks related to Russia and Ukraine.”

Beyond the disruption to production lines caused by the war, Moscow could also cut off its supply of critical materials in response to EU and US sanctions.

“We will hit Russia’s access to important technologies it needs to build a prosperous future – such as semiconductors or cutting-edge technologies,” European Commission President Ursula von der Leyen warned in the wake of the invasion.

The same was said on the other side of the Atlantic in Washington, which announced several sanctions against Moscow, banning the export of technologies – including semiconductors – that could be used to develop Russian weapons.

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading manufacturer of semiconductors, announced that it would comply with the American decision and stopped its exports to Russia. Moscow is highly dependent on the company’s products to manufacture its laptops, smartphones and advanced military equipment.

While embargoes on technology exports do not appear to be as drastic as eviction from the SWIFT interbank information system, the consequences are likely to be severe as they could cripple Russia’s innovation capacity in the long run.

[Edited by Luca Bertuzzi/Zoran Radosavljevic]

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