Invasion of Ukraine halts half of the world’s neon production, which could exacerbate the chip crisis

Why is it important: As the world continues to grapple with semiconductor shortages, Russia’s invasion of Ukraine threatens to put another critical chip component under serious strain. How long the war lasts will determine the severity of the destruction.

About half of the world’s supply of neon, needed for lasers used in chip production, comes from two Ukrainian companies. Reuters reports that both ceased production since the beginning of the Russian invasion. Market Research by Techcet Notes The US receives just under 50 percent of its supplies from the region.

One of the companies, Ingaz, is based in Mariupol, which is currently under attack from Russian forces. Mariupol is the same city where a Russian airstrike hit a maternity hospital earlier this week. Another company, called Kryoin, stopped production on the day the invasion began, although the city where it is based, Odessa, has not yet been attacked.

Shortly after the invasion, chipmakers tried to downplay fears of further supply disruptions. While they acknowledged the importance of Ukraine in neon production, they also noted that manufacturers tend to keep stocks for emergencies. It’s hard to say how much neon various companies and their customers have stockpiled, but a production shutdown could cause major problems within months.

Cryoin believes it can hold out for three months with production halted, but could run into big trouble if its equipment gets damaged and it could have trouble getting the raw materials it needs to clean the neon. Taiwan’s central bank and economy ministry, where TSMC is based, say companies in the country have stockpiles of neon.

Even though companies in other countries could supply neon, the invasion could drive prices up. It could take months or years for other companies that aren’t making neon yet to ramp up production, and it’s not yet clear how long the semiconductor war or shortage will last. The head of research and development at TSMC recently said that the chip shortage could last until 2024.

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