The world continues to grapple with persistent semiconductor shortages, although some segments have seen incremental improvement in recent months. Now, the Russian invasion of Ukraine has the potential to further aggravate the issue with a direct impact on the supply chain of raw materials for chip manufacturing and a fresh wave of panic buying.
Here, Gaurav Gupta, Vice President Analyst at Gartner, speaks to the immediate and long-term impacts of the Russian invasion of Ukraine on supply chains.
Read more: Resources for Executives and Their Teams Amid Russia’s Invasion of Ukraine
What are the potential impacts of the Russian invasion of Ukraine on the chip industry?
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
Read more: How to Manage Ukraine’s Effect on Your Supply Chains
It is important to note that many chip manufacturers have claimed diversity in their raw-materials and gas supply chains with sufficient inventory, and they actually don’t expect to see an immediate impact beyond already-present shortages. However, they are wary of long-term ramifications if the situation persists or escalates.
The impact on raw material supply, market demand and supply behaviors depend on how the situation unfolds, so the biggest risk is whether a new wave of panic buying sets in. 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.
Devices of which there are already shortages, such as power management integrated circuits, enterprise-based networking chips and field-programmable gate arrays, would primarily cause business disruptions to the automotive and communication industries.
Bottom line: The semiconductor supply chain is already strained for a variety of reasons. While greater investment and capacity expansion is planned, the ability to ramp up supply takes time.
Read more: What's Ahead for Semiconductor Shortages
How are Russia and Ukraine relevant to the chip manufacturing industry?
The region supplies various raw materials that are critical to chip manufacturing. As one example, Ukraine is a major source of inert gasses, such as neon required for the semiconductor lithography process, and any disruption in the supply of neon and other noble gasses from the country could trigger shortages and associated cost inflation.
Russia is an important producer of metals like aluminum, nickel and copper. Aluminum is a conductor that is commonly used to manufacture passive components and in wire bonding. Passive components, such as resistors and capacitors, 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.
However, it is important to note that most chip manufacturers have contingency plans, such as diversifying suppliers and maintaining high levels of inventory. As such, we don’t expect to see an immediate impact. But still, panic buying and rising costs of transportation and logistics could lead to higher prices across the board.
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How can businesses protect themselves from these potential impacts?
Assess direct inventory levels of the aforementioned materials. Diversify supply chain sources outside of the region of conflict, and seek out alternative materials.
Enhance the visibility of your supply chain, focusing first on tier-1 suppliers, and then including distributors, manufacturers and lower tiers, such as wafer suppliers.
Continue to track and comply with any updates to sanctions imposed on Russia and its allies. Consider the impact they may have on your business operations and technology exports.
Clients can access Gartner's full suite of resources for navigating the Russian invasion of Ukraine here.