15-03-2022 | By Robin Mitchell
The recent invasion of Ukraine by Russia has caused worldwide effects from market losses to increase fuel prices. But Toshiba, a manufacturer of semiconductors and other electronics, is also worried about its supply chain, with the industry being dependent on Ukraine for key resources.
Why is the semiconductor industry currently vulnerable?
For the past two years, the world has been fighting the COVID-19 pandemic, which saw economies and society effectively grind to a halt. The use of lockdowns saw tens of thousands of businesses shut down, some for the last time, and the trading of goods such as vehicles ceased. The result from all of this was a significant fall in productivity, economies worsening, increased inflation, and increased taxes to try and pay off the large amount of debt garnered by governments all over the world.
Whether you agree or not with the economic policies put in place for a virus that, for the vast majority of individuals, was a runny nose, what can be unanimously agreed upon is that the semiconductor industry did not have a plan in place whatsoever. Simply put, automotive companies (one of the biggest consumers of specialist semiconductors) stopped ordering semiconductors as they were unable to sell new vehicles. Thus semiconductor manufacturers decided to stop manufacturing automotive-grade components.
Fast forward a year into the pandemic, and when factories restarted production, automotive-grade components were out of stock everywhere as their production had been stopped. To make matters worse, it takes at least 6 months to produce such parts meaning that no amount of rush work from a foundry can meet a sudden increase in demand. How long will the semiconductor shortage last? Long story short, the semiconductor industry and its customers had so little communication between them that the industry has been severely damaged, with semiconductor supply shortages expected to exist well into 2023.
How does the invasion of Ukraine affect the semiconductor industry’s capabilities?
The start of 2022 saw the light at the end of the tunnel for COVID, and the world’s population overwhelmingly leapt with joy to see life return to normal. That is until Vladimir Putin decided to ruin 2022 with the invasion of Ukraine based on “recognising Donbas and Luhansk as Russian” (by this logic, Russia would be justified in invading the UK if Cornwall decided to become independent).
The ongoing invasion has brought mass devastation, unnecessary loss of life, and suffering beyond measure for millions, but for the semiconductor industry, there is potential for the conflict to worsen the current shortage of semiconductors. Specifically, Toshiba has recently announced that it has concerns with the supply of Neon and Krypton gas which mostly come from Ukraine.
According to Toshiba, Ukraine accounts for 70% of the world’s supply of these gasses. If the semiconductor industry cannot guarantee this supply from Ukraine, then a new wave of semiconductor shortage may ensue. The resulting shortage will also push up the price for rare gasses, which will either result in alternative sources being found or semiconductor prices increasing.
Will this invasion make semiconductor suppliers change
If the COVID pandemic and the Ukraine invasion have demonstrated anything to the world, it’s that supply chains that involve multiple countries carries some significant risk.
An interesting example of complex supply chains is the formation of the EU common market, whose secondary aim was to make all the European countries dependent on one another for resources so that a future war would be pointless. However, hostile nations such as Russia, China, and Iran threaten such markets, and this presents the world with the uncomfortable truth that global supply chains may not be the best of ideas.
The multiple challenges the semiconductor industry faces, and those that depend on semiconductors, may start to strategise plans to remove the dependency outside nations and minimise the number of countries involved in a single product. Such a move also helps to strengthen IP protection by limiting the ability for foreign nations to have access to designs and resources, which can secure profit for IP holders in the long run.
Of course, trying to manufacture a part in a single country comes with some significant cost issues, and all the materials needed to produce a part may not be available in the country of manufacture. But with multiple foundries now trying to relocate back to their home countries, it is clear that the current state of the semiconductor industry is to look inwards to their solution for supply chain management.