Russia’s war in Ukraine may cause neon production, a vital gas in sophisticated semiconductor manufacturing, to plummet to alarmingly low levels at a time when the world is already facing a chip scarcity.

Neon is necessary for lasers used in lithography, a chip manufacturing technique in which machines cut patterns onto tiny wafers of silicon manufactured by companies such as Samsung, Intel, and TSMC.

According to Peter Hanbury, a semiconductor expert at research firm Bain & Co., a few of Ukrainian companies create more than half of the world’s neon.

Ingas, located in Mariupol, is one of these enterprises, as are Cryoin and Iceblick, based in Odessa.

There were no comments on the issue by the companies.

According to Reuters, Ingas and Cryoin have both suspended operations in recent weeks due to strikes by Russian military.

With world-leading Ukrainian manufacturers shuttering their operations, neon manufacturing is now on the verge of collapsing as the crisis continues on.

According to Techcet estimates, global neon usage for semiconductor manufacture reached around 540 metric tonnes last year. Given that Ukraine generates more than half of the world’s neon, the figure might fall below 270 metric tonnes in 2022 if the country’s neon plants remain closed.

“Of the materials used in chip-making that could see a hit to their supply from the Ukraine conflict, it is neon that poses the greatest potential challenge,” Hanbury said via email.

The continuous global chip shortage has already disrupted supply chains and resulted in lengthy delays for products such as new cars and game consoles such as the PlayStation 5.

A potential global neon scarcity now threatens to exacerbate the situation.

Neon is produced as a byproduct of large-scale steel manufacturing.

It is created using the fractional distillation (a chemical separation process) of liquid air, which is air that has been cooled to extremely low temperatures.

“Historically, up to 90% of the neon for the chip industry was produced as a by-product of Russian steel manufacturing and later refined by companies mainly based in Ukraine,” Hanbury said, pointing to companies like Cryoin, Ingas, and UMG RT.

According to Alan Priestley, an analyst at Gartner, most big chip manufacturers have several months of neon in reserve, and it isn’t a major issue for them yet.

Intel stated that it is closely monitoring the situation.

“Intel has assessed the possible impact of the Russia-Ukraine conflict on its supply chain,” a spokesperson said.

“Intel’s strategy of having a diverse, global supply chain minimizes its risk from potential local interruptions. We continue to monitor the situation carefully,” they added.

There were no comments from TSMC and Samsung.

“Some smaller fabs with limited supply may be affected earlier,” Priestley said. Chip manufacturers are working with their supply chains to try to minimize the impacts, he added.

For years, the global semiconductor industry has been prepared for an event like this.

Following Russia’s takeover of Crimea in 2014, it took critical actions to try to reduce future hazards linked with neon supplies.

“Following the Crimean annexation, the chip sector acted to cut the need for use of neon in the manufacturing process,” Hanbury said. “At the same time, steps were taken to increase stocks of the gas at two points in the supply chain, so both gas suppliers and semiconductor makers each typically now have three to 12 months supply at hand.”

Semiconductor makers have established new suppliers outside of Ukraine and Russia, according to Hanbury.

“We estimate only about two-fifths of the neon used in global semiconductor production today is sourced from Russia and Ukraine,” Hanbury added.

According to Hanbury, the Dutch firm ASML, which manufactures the highly complicated lithography machines used by the chip giants, has decreased its reliance on neon obtained from Ukraine to about 20 per cent of earlier levels.

“ASML recognizes the importance of being prepared in order to manage unplanned events including conflicts when they could impact our supply chain,” said a spokesperson for ASML.

“We continue to closely monitor the status of the conflict and are currently investigating together with our suppliers what the impact (if any) would be and to what extent our suppliers can use alternative sources if necessary,” they added.

(Adapted from CNBC.com)