Russia's invasion of Ukraine could lead to a global chip shortage

The global shortage of chip supply just got a lot worse.

Why? Because of the shortage of neon gas that is critical to the process of manufacturing semiconductors. Russia and Ukraine were major exporters of neon but production has stalled due to the war, according to an article by Market Place released Tuesday.

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Auto industry and more in trouble 

What is the neon used for? Lasers that etch circuit patterns onto wafers of silicon, a process responsible for manufacturing approximately 90 percent of the chips made today.

This includes those used in cars, an industry already suffering from chip shortages. This could result in millions of vehicles not being produced this year alone.

Not all is lost, however. Companies do have about two or three months' supply of neon on hand, a measure that was put in place after the last time Russia invaded Ukraine eight years ago.

Worries abound

Still, experts are worried.

“I think companies are downplaying their worry [about a neon shortage],” Nina Turner, a semiconductor analyst with IDC, told Market Place. “But I do think they are putting contingency plans into place as we speak.”

There is also concern that Russia's bombing of Ukraine will destroy the facilities that produce neon making it impossible to pick up activities even after the war is over.

Larissa Bondarenko, business development director of Cryoin Engineering a neon production firm located in southern Ukraine in the port city of Odesa, told Market Place that her firm stopped production days ago and it is unclear when it will start again.

“There’s a high risk that the port will be destroyed, then the logistics will be much, much harder to restart,” she said.

Meanwhile, the Financial Times reported that the supply of neon, xenon, and krypton is getting tighter as chipmakers and trading houses rush to make more orders due to the fact that the gases are bound to be in short supply as the war rages on.

Last November, Japan announced it had committed $5.2 billion (roughly 600 billion yen) toward providing support for semiconductor manufacturers in a bid to help solve the world's ongoing chip shortage. Will it be enough?