Relevance: GS-3: Indian Economy and issues relating to Planning, Mobilisation of Resources, Growth, Development and Employment;
Relevance: GS-2: Effect of Policies and Politics of Developed and Developing Countries on India’s interests
Key Phrases: Cascading Effect, Supply Chain Disruptions, photolithography process , ICs; Importance of Neon and Palladium for Semiconductor Industry
Why in News?
- The ongoing war between Russia and Ukraine is going to have repercussions on the global economy due to supply chain disruptions.
- Production of some of the key elements from these 2 countries and which are important for Semiconductor industry has been stopped thereby threatening the global economy.
Semiconductors
- Semiconductors possess specific electrical properties.
- A substance that conducts electricity is called a conductor,
and a substance that does not conduct electricity is called an
insulator.
- Semiconductors are substances with properties somewhere between them.
- ICs(integrated circuits) and electronic discrete components such as diodes and transistors are made of semiconductors.
- Common elemental semiconductors are silicon and germanium.
- Silicon forms most of ICs.
- Common semiconductor compounds are such as gallium arsenide or indium antimonide.
- Semiconductors became essential for many electronic appliances as well as for social infrastructure that support our everyday life.
- Semiconductors were discovered all the way back in the 19th century. In the 1940s, transistors were invented.
Key Highlights of the article
- Supply of semiconductors, which plummeted due to Covid-related disruptions but had started picking up as manufacturing chains normalised, is now being threatened once again by the Ukraine crisis.
- This is on account of supply of two key raw materials that are at a risk
of being constrained.
- Neon
- Palladium
Why was there a shortage in semiconductors?
- Disruptions due to COVID related lockdowns
- The trigger point was the beginning of the Covid-19 pandemic and the subsequent lockdowns across the world that forced chip-making facilities to shut in countries like Japan, South Korea, China and the US.
- A key feature in a chip shortage is that it always causes cascading effects, given that the first one creates pent-up demand that becomes the cause for the follow-up famine.
How is the Russia-Ukraine crisis protracting this shortage?
- Shortage of Key materials
- Palladium and Neon are two resources that are key to the production of semiconductor chips.
- The current condition
- Russia supplies over 40% of world’s Palladium
- Ukraine produces 70% of neon,
- During the 2014-15 Crimea invasion, neon prices went up several
times over
- This serves as an indication of the seriousness of the current crisis for the semiconductor industry.
- The answer to that question is a function of 2 variables
- The existing stockpiles of these raw materials with chip manufacturers
- The time for which the crisis in Ukraine prevails.
- Technology has improved significantly since 2015
- Chip-making companies have stockpiled resources owing to elevated demand during the pandemic, but the caveat is that inventory can only last so long.
- If a deal is not brokered in the coming months, expect the chip shortage to get worse and for industries highly dependent on them to be similarly affected.
Repercussions
- This means significant risks are ahead for many
- Automakers
- Electronic device manufacturers
- Phone makers
- And many other sectors that are increasingly reliant on chips for their products to work
- As per Reuters report
- If stockpiles are depleted by April and chipmakers don’t have orders locked up in other regions of the world, it likely means further constraints for the broader supply chain and inability to manufacture the end-product for many key customers.
Why are neon and palladium important for chipmaking?
Neon
- This gas is used in the photolithography process that is the most common method for fabricating integrated circuits.
- Specifically, the neon gas is used in the laser machines that carve the integrated circuits.
- But for use of neon gas in the semiconductor industry, the gas has to reach 99.99% purity levels which makes it a rarity.
- More than half of semiconductor-grade neon comes from Ukrainian companies Incas and Cryoin.
Palladium
- This is used for multiple purposes in semiconductor and electronic manufacturing.
- It is used to coat electrodes that help control flow of electricity.
- It is also used in plating of microprocessors and printed circuit boards — which is an essential process of chip making.
- Russia accounts for nearly half the global supplies of palladium and the multiple trade sanctions on Moscow threaten to constrain the availability of the element
Source: Indian Express
Mains Question:
Q. How can the Russia-Ukraine Crisis affect the semiconductor industry and how can India ensure its semiconductor industry’s interests?
