Two companies based in Ukraine that make a majority of neon gas used in part of the process to print the most advanced chips have shut down because of Russia's invasion, Reuters reported Friday.
Should the two neon suppliers remain shut down for a prolonged period — months, rather than weeks — it could disrupt chip manufacturing, especially for businesses that don’t have a stockpile. Ukraine produces roughly 25% of the world’s neon, which is a byproduct of steel manufacturing, according to Bernstein Research. Large semiconductor manufacturers such as Intel or TSMC typically store two to three months of the gas, and there may be as much as three months worth of neon moving through the supply chain.
The two Ukrainian companies, Ingas and Cryoin, produce 45% to 54% of the neon used in chip manufacturing around the world, according to Reuters. Neon is used as part of the lithography stage of chip manufacturing, the step that involves using lasers to draw features onto the silicon wafers. Chipmakers account for 75% of global demand for neon, with the remainder going to industrial lasers and Lasik eye surgery, according to Bernstein analyst Stacy Rasgon.
Rasgon estimated that the industry wouldn’t experience disruptions for the next “several months.” But if the war drags on longer, there will be problems, he wrote in a research note distributed Monday.
“Many large semi companies are on long-term contracts though so gas companies will absorb at first, but large semi players may have an advantage over small ones,” Rasgon wrote. “Beyond this, the industry is capable of paying up and shouldering high prices to secure supply as neon is tiny part of the cost structure; industrial lasers / lasik etc. may ultimately get starved first (so get your eye surgery now).”
According to Reuters, the two Ukrainian companies have halted operations, and a Cryoin executive warned that if their equipment is damaged during the fighting it would make restarting production much more difficult. The same executive also warned that it wasn’t clear where the company would access the raw materials needed to purify neon gas.
Correction: This story was corrected to update the spelling of Ingas. This story was updated March 11, 2022.