The Crisis Could Tighten the Squeeze on Semiconductors

The Crisis Could Tighten the Squeeze on Semiconductors

  • March 18, 2022
  • 292

The ongoing Russia-Ukraine crisis and resulting trade sanctions threatens to worsen the semiconductor shortage. When the COVID-19 pandemic hit, many manufacturers planned for a downturn and reduced demand, with semiconductor factories scaling down in anticipation of a larger-than-realized recession. Earlier this year, there were some signs that the shortage would begin to subside this year, but the ongoing crisis between Russia and Ukraine threatens to exacerbate the issue.

In 2020, the economy recovered more quickly than anyone anticipated, with workers and consumers continuing to purchase tech to help them work remotely and entertain themselves while at home. Coupled with a faster recovery in the automotive sector where chips are critical, semiconductors for electronics became hard to find. This shortage is impacting a wide range of products, including automotive, computers, displays, smartphones, gaming consoles and many other electronics.

The shortage is ongoing despite planned capacity improvements and new factories, but Russia’s invasion of Ukraine may wreak further havoc on the semiconductor market.

Both Russia and Ukraine countries are major producers of material needed to make semiconductors. Ukraine is a large source of inert gasses such as neon which is required for the semiconductor lithography process. Meanwhile, Russia is a large producer of metals, including aluminum, nickel and copper, which are commonly used in all types of electronic equipment.

“Any disruption in the supply of any of these metals could cause prices to rise and subsequently impact the prices of semiconductor devices and electronic systems,”

As countries throw trade sanctions and prohibit trade between certain entities, the result could mean an even larger shortage of raw materials, panic buying or depletion of inventories, and more sanctions or disrupted demand that result in imbalances to supply chains that spill over into planning and capacity management.

The biggest risk is whether a new wave of panic buying of semiconductors and other technology sets in due to the conflict between Russia and Ukraine. It was one of the major reasons for the onset of the ongoing semiconductor shortage, as it overstretched and deteriorated the supply chain further, without bringing any advantages to buyers.

There are three main scenarios that could play out:

  • Raw material shortages or disruption in the supply of raw materials from Ukraine and Russia that are critical to everything from micro and sensor chips to memory and packaging
  • Panic buying or depletion of inventories from final products to n-tier materials, resulting in shortages and price hikes
  • Sanctions or disrupted demand that result in imbalances to supply chains that spill over into planning and capacity management, as well as capacity investments right when semiconductor investments are in high gear.

 

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