How will the Russian invasion of Ukraine affect the global supply chain? The good news is that the US chip industry appears to be isolated from the conflict at the moment. But war could become a reason, legitimate or otherwise, for electronics vendors to raise costs.
“It wouldn’t surprise me if companies said ‘We’re raising prices because of the conflict,'” said Shawn DuBravac, chief economist for electronics manufacturing trading group IPC.
The conflict is already raising concerns that it could disrupt semiconductor production because Ukraine and Russia are the main suppliers of neon gas, which is used in lasers for chip production. Russia is also a major producer of palladium, a rare metal used in computer components, sensors and fuel cells.
However, it appears chip makers have found ways to source their neon gas elsewhere. “The semiconductor industry has a diverse set of suppliers of key materials and gases, so we don’t believe there is any immediate outage risk related to Russia and Ukraine,” said the Semiconductor Industry Association, which counts AMD, Nvidia and Qualcomm as members.
Intel added: “We do not anticipate any significant impact on our supply chain. Our strategy of having a diverse and global supply chain minimizes the risk of potential local disruptions. ”
(I-Hwa Cheng / Bloomberg via Getty Images)
According to DuBravac, the United States imported about 45% of rare gas supplies, including neon, from Russia and Ukraine last year. The remaining imports came from China, Germany and France. So those countries could continue to supply the United States in the event that supplies of neon from Russia and Ukraine are cut off. Other trading partners may also respond by establishing their own neon production.
But the biggest concern is that the conflict will become a protracted war. So the fighting would risk disrupting or destroying the production of neon gas and other raw materials in Ukraine. “At a minimum, this would likely raise the price of neon globally,” DuBravac said.
The other concern is that the conflict will lead to higher oil prices, and thus higher transportation costs, as Russia is a major energy exporter. “If you look at transportation costs in the United States, they are already about 65% higher than they were before the pandemic,” she added.
It doesn’t help the issue is that the global supply chain is already in a fragile state due to COVID-19 and massive demand for semiconductors. The PC graphics card market has seen some of the worst with rising costs and low supplies. However, even as the conflict in Ukraine does little to disrupt the supply chain, DuBravac said price hikes for consumer electronics could still be incoming.
“We are in an environment where companies feel they can raise prices and can justify those prices. And consumers, for now, are willing to pay higher prices, “she said.” I was just at an event and the producers were telling us we’re raising prices because we can. “
This is why DuBravac suspects that at least some suppliers will use the war in Ukraine as a reason to implement price increases. “This may be true in some cases, but in other cases it will be due to the pricing environment,” he said.
Recommended by our editors
Runar Bjørhovde, an analyst at research firm Canalys, also predicts that the conflict in Ukraine will drive up electronics prices. “We are probably looking ahead a couple of quarters before this affects consumers,” she said, indicating how the costs of raw materials, including oil, are likely to rise.
Others, like research firm IDC, say it’s too early to say how the conflict will impact the global supply chain. One factor has been US sanctions on Russia, which intend to paralyze the country’s tech sector. Russia could respond with its own retaliatory measures, which could trigger ripple effects across the industry.
“A lot depends on what the sanctions actually entail, the willingness of other governments to go along with them and the willingness of any non-US company to accept them,” IDC said in an email. “There is also the question of how Russia responds. So, way too many variables at this point.
Meanwhile, Global Foundries, the largest chip foundry in the United States, said it does not foresee a direct risk on its production due to the conflict in Ukraine. “Our global presence, with Fabs on three continents, helps us diversify our supply chain and gives us flexibility to cross-qualify our Fabs and leverage alternative sources outside of Russia or Ukraine for key supplies.” , the company said. “We are not entirely immune from the global shortage, but our footprint provides us with greater isolation.”
Get our best stories!
Subscribe to What’s new now to get our best stories delivered to your inbox every morning.