How will the Russian invasion of Ukraine affect the global supply chain? The good news is that the US chip industry seems insulated from the conflict for now. But the war may become a reason —whether legitimate or not— for electronics vendors to hike up costs.
“It would not surprise me if companies say ‘Due to the conflict we are raising prices,’” said Shawn DuBravac, chief economist for the electronics manufacturing trade group the IPC.
The conflict is already sparking worries it could disrupt semiconductor production because Ukraine and Russia are top suppliers of neon gas, which is used in the lasers for chip manufacturing. Russia is also a major producer of Palladium, a rare metal used in computer components, sensors and fuel cells.
However, it seems 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 do not believe there are immediate supply disruption risks 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 to our supply chain. Our strategy of having a diverse, global supply chain minimizes our risk for potential local interruptions.”
According to DuBravac, last year the US imported about 45 percent of rare gas supplies, including neon, from Russia and Ukraine. The remaining imports came from China, Germany and France. So those countries could continue to supply the US in the event neon supplies from Russia and Ukraine are cut off. Other trade partners might also respond by establishing their own neon production.
But the bigger concern is that the conflict will become a protracted war. Then the fighting would risk disrupting or destroying neon gas and other raw material production in Ukraine. “At a minimum, that would probably raise the price of neon globally,” DuBravac said.
The other worry is that the conflict will lead to higher oil prices, and thus higher transportation costs, since Russia is a major energy exporter. “If you look at freight costs in the US, they’re already about 65% higher than what they were pre-pandemic,” he added.
Not helping the matter is the global supply chain is already in a fragile state due to COVID-19 and the massive demand for semiconductors. The PC graphics card market has seen some of the worst of it with costs up, and supplies low. However, even if the Ukraine conflict does little to disrupt the supply chain, DuBravac said price hikes for consumer electronics may be inbound anyways.
“We’re in an environment where companies definitely feel like they can raise prices and they can justify those prices. And consumers, for now, are willing to pay higher prices,” he said. “I was just at an event and manufacturers were telling us we’re raising prices because we can.”
It’s why DuBravac suspects at least some vendors will use the war in Ukraine as a reason for enacting price hikes. “It might be true in some cases, but in other cases, it’ll be due to the pricing environment,” he said.
Runar Bjørhovde, an analyst at the research firm Canalys, also expects the Ukraine conflict to trigger electronics pricing to go up. “We’re probably looking a couple of quarters into the future before this will affect consumers,” he said, pointing to how the costs of raw materials, including oil, will likely rise.
Others such as the research firm IDC say it’s still too early to say how the conflict will impact the global supply chain. One factor has been the US sanctions on Russia, which intend to cripple the country’s technology sector. Russia might respond with its own retaliatory measures, which could spark ripple effects across the industry.
“A lot depends on what any sanctions actually entail, the willingness of other governments to go along with these, and the willingness of any non-US companies to go along with these,” IDC said in an email. “There’s also the question of how Russia responds. So, really just too many variables at this point.”
In the meantime, Global Foundries, the largest US chip foundry, said it didn’t anticipate a direct risk on its manufacturing due to the Ukraine conflict. “Our global footprint, with Fabs on three continents, helps us to diversify our supply chain and gives us flexibility to cross-qualify our Fabs as well as leverage alternative sources outside of Russia or the Ukraine for key supplies,” the company said. “We are not totally immune to global shortages, but our footprint provides us with more insulation.”
