Chipmakers see limited impact for now, as Russia invades Ukraine

By Tim Kelly and Ben Blanchard

TOKYO/TAIPEI (Reuters) -Large chip companies said they expected limited supply chain disruption for now from the Russia-Ukraine conflict, thanks to raw material stockpiling and diversified procurement, but some industry sources said there could be an impact longer term.

Europe faced one of its biggest security crises in decades, after Russia invaded Ukraine by land, air and sea.

The crisis hit stocks of tech companies that source or sell globally amid fears of further supply chain disruptions after a yearlong shortage of semiconductor chips.

Ukraine supplies more than 90% of U.S. semiconductor-grade neon, critical for lasers used in chipmaking. The gas, a biproduct of Russian steel manufacturing, is purified in Ukraine, market research firm Techcet says. Russia is the source of 35% of the palladium used in the United States. The metal is used in sensors and memory, among other applications.

"The chipmakers are not feeling any direct impact, but the companies that supply them with materials for semiconductor fabrication buy gases, including neon and palladium, from Russia and Ukraine," said a Japanese chip industry source who spoke on condition of anonymity. "The availability of those materials is already tight, so any further pressure on supplies could push up prices. That in turn could knock on to higher chip prices."

But companies are better prepared than in recent years, thanks to other disruptions and conflicts.

"We understand that reports of potential disruption of supply of minerals and noble gases, due to ongoing tensions between Russia and Ukraine, are concerning for the semiconductor industry," memory chip maker Micron Technology said, but added that it had "diversified sourcing" for its supplies.

The White House told the chip industry to diversify its suppliers in case Russia retaliated against U.S. sanctions, which have so far targetted Russia's Nord Stream 2 gas pipeline to Europe and some Russian banks. Further steps are expected.

ALTERNATIVE SOURCES

ASML Holding, a key Dutch supplier to chipmakers including TSMC, Samsung Electronics and Intel, said on Wednesday it was examining alternative sources for neon.

Most chipmakers said they were in wait-and-see mode before Thursday's escalation, after already diversifying supply chains because of the U.S.-China trade standoff, the pandemic and Japan's diplomatic spat with South Korea.

Some firms began diversifying from Ukraine and Russia after Moscow's annexation of Crimea in 2014 triggered a jump in neon prices.

South Korean memory chipmaker SK Hynix CEO Lee Seok-hee told reporters last week that the company had "secured a lot" of chip materials, and that "there's no need to worry".

Intel Corp said it did not anticipate any impact. GlobalFoundries said it did not expect a direct risk and had flexibility to seek sources outside Russia or Ukraine, as did Taiwan chipmaker United Microelectronics Corp.

TSMC, the world's largest contract chipmaker declined to comment "at the moment", while Taiwanese chip testing and packaging firm ASE Technology said its material supply remained stable "at this point".

Taiwan's Ministry of Economic Affairs told Reuters it had checked Taiwan's semiconductor supply chain and found no direct impact on materials or production activities.

"Russia is not, at the moment, one of the Taiwanese foundry industry's major markets," said Joanne Chiao, senior analyst at market researcher TrendForce.

Malaysian chipmaker Unisem, whose customers include Apple, said it expected no impact on chip production because the materials it needed were not sourced from Russia and its machines were mainly from the United States, Japan, Korea, Singapore and locally.

Malaysia is a vital link in the chip production, accounting for 13% of global chip assembly testing and packaging.

Japan's Ibiden, which makes packaging substrates for chips, said it had enough materials but sanctions could change that, when asked about neon and other gas supplies from Russia. "We are a little concerned," a spokesperson said.

(Reporting by Tim Kelly in Tokyo and Ben Blanchard in Taipei; Additional reporting by Joyce Lee in Seoul, Yimou Lee and Sarah Wu in Taipei, Chavi Mehta in Bangalore and Liz Lee in Kuala Lumpur; Writing by Sayantani Ghosh and Edmund Blair; Editing by Gerry Doyle)