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Laser neon shortage threatens semiconductor industry

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A picture of a semiconductor wafer.

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Russia’s invasion of Ukraine could lead to the production levels of neon, which is critical for advanced semiconductor manufacturing, falling to alarmingly low levels. At a time when there are already shortages of chip, the world may be facing a serious problem with its supply.

Lasers used in chip production are dependent on neon. These machines use lasers to carve patterns onto small pieces of silicon. Samsung, IntelAnd TSMC.

More than half of the world’s neon is produced by a handful of companies in Ukraine, according to Peter Hanbury, a semiconductor analyst at research firm Bain & Co.

Mariupol-based Ingas is one of those companies, along with Cryoin (and Iceblick), which are both located in Odessa.

CNBC reached out to the firms for comments but Ingas, Cryoin and others did not respond immediately to Reuters’ request. However, Reuters reports that Ingas as well Cryoin had both stopped operations during attacks by Russian forces in recent weeks.

The conflict is dragging on and neon production has been shut down by world-leading Ukrainian businesses.

Techcet estimates that the world’s neon use for semiconductor production was approximately 540 metric tonnes last year, according to Techcet. If the country’s neon production plants are closed, it is possible that the number could drop to 270 metric tonnes in 2022. Ukraine accounts for more than half the global neon.

Hanbury said via email that neon is the most challenging material in chip-making and that they could be affected by the conflict in Ukraine.

Already, the ongoing shortage of chips worldwide has caused havoc in supply chains. This has led to long delays for products like new cars or games consoles such as the PlayStation 5.

Now, a potential global neon shortage could make things even more difficult.

Neon is the best!

Neon is an byproduct of large scale steel production.

The fractional distillation of liquid oxygen, which involves the chemical separation and production of air at very low temperatures, is what produces it.

Hanbury explained that neon was historically produced from a by-product in Russian steel fabrication and later refined by Ukrainian companies. He cited companies like Ingas and UMG RT.

Gartner analyst Alan Priestley stated to CNBC that the majority of major chip companies have several months’ worth of neon on hand. He added that they don’t consider it a big issue.

Intel stated that it closely monitors the situation. CNBC was informed by a spokesperson that Intel had assessed the impact of Russia-Ukraine’s conflict on its supply chain.

The statement added that Intel’s strategy to have a global supply chain with diverse components minimizes the risk of disruptions in local markets. “We continue to closely monitor the situation.”

TSMC refused to comment, and Samsung didn’t immediately reply to a CNBC inquiry for comment.

Priestley stated that “some smaller fabs may have less supply” and could be affected sooner. Priestley said chip makers are working to mitigate the effects by collaborating with their supply chains.

How to prepare for a neon shortage

Since years, the worldwide semiconductor industry has prepared for this event.

In the aftermath of Russia’s 2014 annexation, it took important steps to reduce future risks from neon supply.

Hanbury explained that “Following Crimean annexes, the chip sector took measures to reduce the requirement for neon in the manufacturing process.” Both gas suppliers as well as semiconductor manufacturers now typically have three to twelve months of gas supply.

Hanbury stated that new suppliers were also set up by the semiconductor companies, including those from Russia and Ukraine.

Hanbury said that only two-fifths (or less) of global neon production is from Russia or Ukraine.

Dutch company ASMLHanbury said that a company called ‘, which produces the complex lithography machines used in chip giants’, has reduced the dependence on neon from Ukraine to around 20%.

CNBC spoke with an ASML spokesperson who said: “ASML recognises the importance to be prepared in order manage unplanned events, including conflicts that could affect our supply chain.”

The statement added, “We continue to monitor the situation of the conflict. We are currently investigating with our suppliers what impact (if any) it would have and in what extent our suppliers could use alternative sources.

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