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Russia Could Hit US Chip Industry, White House Warns

According to people familiar with the matter, the White House has warned all companies that are part of the chip industry to diversify their supply chain in the event that Russia decides to retaliate by cutting off access to essential materials because of the US threats on exports. In the last few days, there has been a lot of attention focused on retaliation after a report was published by Techcet on February 1st. The report highlighted the reliance of numerous semiconductor makers on materials, such as palladium, neon and others, which come from Ukraine and Russia. According to the estimates given by Techcet, about 90% of the neon supplies for semiconductors in the United States are obtained from Ukraine.

Meanwhile, around 35% of the palladium in the country comes from Russia. In recent days, a member of the National Security Council, Peter Harrell, have reached out to people from the chip industry. He has learnt about their dependence on Ukrainian and Russian chipmaking materials and also urged them to look for alternatives. No specifics were provided by the White House regarding these conversations, but an official stated that the administration was prepared for Russia’s invasion of Ukraine. The person highlighted that it was partly because they wanted to check the preparedness of companies for dealing with any disruptions in supply, in the event that Russia decides to retaliate.

The individual added that alternatives of key products were available and they were more than willing to collaborate with US companies for ensuring supply diversification. SEMI is the group of chip and electronics manufacturing suppliers. Joe Pasetti, who is the Vice President for the group’s public policy globally, had sent an email in the week to its members about gauging their exposure to the essential chip-making supplies. He had made a reference to the conclusions drawn by Techcet regarding the key materials that are sourced from Russia including Neon, Palladium and Helium, amongst others. He wanted to know potential disruptions in supply could pose a problem.

Essential for the lasers needed in the chip manufacturing process, Neon is a byproduct of steel manufacturing in Russia, but Ukraine is where it gets purified. Meanwhile Palladium is reserved for use in memory and sensors, along with other applications. If Russia decides to invade Ukraine, the Biden administration is planning on imposing widespread export controls. Russia is adamant about having no plans to attack, even though about 100,000 of its troops are on the Ukrainian border. A number of chipmakers have evaluated their supply chains to assess the potential fallout from the conflict. 

A chip-making company’s employee stated that they were looking into their supplies of gases like Neon that they source from Ukraine. The person stated that there would not be a supply problem due to the conflict, but prices would definitely go up. The individual said that the gases would become scarce, but it would not impact semiconductor manufacturing. An executive of a startup dealing in chip design stated that rare gas prices had gone up due to unrest in Ukraine and this could result in problems in the supply chain. 

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