IS THE WORLD HEADING FOR A SEMICONDUCTOR SCARCITY?
Is the world heading for semiconductor scarcity? Most likely yes. The world was busy in managing the Ukrainian Crisis which finally went out of hand. Now it has unfolded into a full bloom war, the human fallout besides the necessary power game is all too well known. But wars have fallouts of which everything is not known. One such fall out of the current crisis would certainly be Semiconductor scarcity. Russia-Ukraine war in most likelihood is going to cripple the semiconductor industry globally. The broken semiconductor supply chain and the issues emanating out of it, has been the world’s struggle for quite sometime now. Many industries have faced shortages and consequent economic and human impact. Geographical re-engineering was being thought of, given the criticality of this industry.
India for the first time in decades has put its semiconductor dream on its national agenda and some progress seems to be on the cards. The semiconductor shortage, which is all too well known by now, was expected to ease by mid-2022 is likely to get worse. Both the warring countries are suppliers of components used in the semiconductor industry. With the Russian attack in progress, this industry will be put under further duress. Worst fears are now coming out in the open of this conflict ending up in manufacturing constraints leading to acute supply shortages and semiconductor price hikes. In a similar way as Taiwan, these two countries are primordial to the semiconductor supply chains.
Ukraine is both a source and supplier of raw materials, the important one being, semiconductor-grade neon, used in semiconductor manufacturing. Russia is a key source of palladium used in many memory and sensor-chips, accounting for 45% of its global supply. If the war and devastation continue, the chip capacity would be impacted for sure and has potential to put chip prices in a spin. Chip powers everything, has a complex ecosystem, its manufacturing being complex and difficult, and no one country has managed to master the ecosystem. The process is technically challenging, geographically spread and intricately find tuned. Contract chipmakers share wafer specifications with fabless companies, which send their design IPs to be printed on the wafers.
Wafers are turned into semiconductors courtesy high-precision machinery from ASML, Tokyo Electron and Applied Materials. On the component side Russia supplies rare earth metal scandium besides palladium mentioned earlier. Ukraine’s neon gas is used in the all important process of etching circuit designs onto silicon wafers to create chips. Lithography, etching and deposition can involve 300 to 700 steps. It was a $440 billion industry in 2020 and is likely to cross $600 billion next year. Undoubtedly, semiconductors have the most complex supply chain in its creation. Any disruption is similar to a small accident on the highway ending up into snarling traffic or a hold up for many hours at a stretch. ”Events like war have a significant impact on this ecosystem. We seem to be getting into that whirlpool.
WAR INDUCED SEMICONDUCTOR SHORTAGE CAN SNOWBALL INTO A MAJOR ECONOMIC CATASTROPHE.