Already challenged by pandemic-induced chip supply shortages, semiconductor manufacturers and their customers rightly worry that the Russia-Ukraine conflict could further hamper supply chain reliability. Wafer fabrication facilities will struggle to produce modern chips without key elements like Ukrainian sourced neon and krypton as well as Russian mined palladium. Shortages like these will predictably lead to scarcity, delays, and higher prices, impacting many industries – Automotive, Electronics, Utilities, and more.
But these aren’t the only risks. Portions of the semiconductor supply chain have become geographically concentrated. This geographic specialization is not just driven by the regional availability of materials, complexity – driven by the need for advanced skills or equipment – can also be a reason for concentration. While this concentration creates efficiencies for the industry, it also poses resiliency risks if natural disasters or geopolitical events jeopardize key aspects of the manufacturing process.
To address these risks, some governments are bolstering domestic manufacturing capabilities. The multibillion-dollar US research and manufacturing stimulus, the comparably-sized EU Chips Act, and the Chinese National Semiconductor Fund serve as examples of these repatriation efforts. Governments are also exploring partnerships with multinational corporations like the EU’s collaboration with Intel and Apple to enhance manufacturing capabilities and workforce talent.
Noting the above chokepoints against a backdrop of heightened international tension, semiconductor supply chain resilience is expected to be an ongoing geostrategic concern for years to come.